Crude oil plunges 8%: Why Asian Paints, MRF, IndiGo, IOC, HPCL, BPCL and RIL are in focus

Oil-linked stocks are expected to be on investors’ radar on Thursday, November 5, as crude oil prices witnessed a sharp decline in the previous session following the US midterm election result.

Crude oil prices plunged more than 8% on Wednesday, November 4, settling at their lowest levels in over two months, as investors bet that the US midterm election outcome could accelerate efforts to end the US-Israeli war with Iran.

Brent crude futures settled 8.7% lower at $94.62 a barrel, while US West Texas Intermediate (WTI) crude futures declined 8.3% to $88.12 per barrel. Both benchmarks closed at their lowest levels since August 31.

The decline came amid hopes of easing geopolitical tensions and improving crude supply prospects. Iran has also announced an exemption allowing commercial shipping traffic from four countries, including India and China, to transit the Strait of Hormuz.

The critical maritime chokepoint, which handled nearly a fifth of global fuel supplies before Iran shut it following joint US-Israeli strikes on February 28, has faced restrictions amid the continuing hostilities.

For India, a sustained decline in crude oil prices could ease input-cost pressures across several sectors, including oil marketing companies (OMCs), paints, tyres and aviation. However, the impact on oil producers and diversified energy companies such as Reliance Industries could be mixed.

Oil-linked stocks: How the fall in crude oil prices impacts sectors

Oil marketing companies (OMCs): IOC, BPCL, HPCL

Lower crude oil prices can reduce the cost of purchasing crude and producing fuels such as petrol and diesel. If retail fuel prices remain unchanged, OMCs could see an improvement in marketing margins.

However, falling crude prices can also lead to inventory losses on existing stock. The net impact will depend on the pace of the decline, retail fuel prices and refining margins.

Upstream oil companies: ONGC, Oil India

Lower crude prices are generally negative for upstream oil producers, as they reduce the realisation from crude oil sales. A sustained decline in international crude benchmarks could weigh on their revenue and profitability.

Reliance Industries (RIL)

Reliance Industries could see a mixed impact. Lower crude prices may ease feedstock costs for its petrochemicals business and reduce working capital requirements. However, the impact on its oil-to-chemicals (O2C) business will also depend on refining margins, product prices and inventory gains or losses.

Paint companies: Asian Paints, Berger Paints, Kansai Nerolac

Crude oil derivatives are key raw materials for the paint industry. Lower crude prices could ease input costs, including those of solvents and other petrochemical-based materials, supporting margins if companies are able to pass on the benefits.

Tyre companies: MRF, Apollo Tyres, CEAT

Synthetic rubber and other crude-linked derivatives are important raw materials for tyre manufacturers. A sustained decline in crude prices could reduce input costs and support margins, although natural rubber prices and other raw material costs will also influence profitability.

Aviation companies: InterGlobe Aviation (IndiGo), SpiceJet

Aviation turbine fuel (ATF) is one of the largest operating expenses for airlines. Lower crude oil prices could translate into lower ATF costs, improving operating margins and reducing pressure on ticket prices.

However, the extent of the benefit will depend on domestic ATF pricing, currency movements, and the pace at which lower crude prices are passed on to airlines.