HPCL, BPCL, IOCL shares tank 5%, NIFTY oil & gas declines 3% as US-Iran talks fail; here's what analysts said

Oil-sensitive stocks, such as oil marketing companies (OMCs), tyres, paint, and aviation, saw a sharp decline on Monday, April 13, as global crude oil prices soared past the $100 per barrel (bbl) mark after the US-Iran talks fell through over the weekend.

In the aftermath of the failed negotiations between the two countries, US President Donald Trump said that the United States was planning on blockading the Strait of Hormuz. These developments sent crude oil prices surging globally.

Meanwhile, the government over the weekend hiked the windfall tax to ₹42 a litre on aviation fuel from an earlier ₹29.5 a litre. Previously on March 26, the government had imposed an export duty of ₹21.50 a litre on diesel and ₹29.50 a litre on ATF. The duties were levied to increase domestic availability of the fuel amid the war in West Asia.

The NIFTY oil & gas index fell as much as 2.7% to touch an intraday low of 10,893.55 on Monday. At around 11:41 AM, the index was trading 1.46% lower at 11,029.70.

Out of the index’s 15 constituents, 11 were trading in the red, while the remaining four advanced at the time of writing.

How OMCs are performing

Shares of Hindustan Petroleum Corporation Ltd (HPCL) declined as much as 5.5% to touch an intraday low of ₹340.80 per unit on the National Stock Exchange (NSE) on Monday, compared to the closing price of ₹360.60 in the previous trading session. At the time of writing, it was trading 3.83% lower at ₹346.80 per equity share.

The stock of Indian Oil Corporation Ltd (IOCL) plunged as much as 3.8% to reach the day’s low of ₹137.56 per equity share on the NSE, in comparison to the close of ₹142.96 apiece on Friday. It stood at ₹139.95 per unit, down by 2.11% at the time of writing.

Shares of Bharat Petroleum Corporation Ltd (BPCL) tanked as much as 5.04% to hit an intraday low of ₹284.25 apiece, compared to the closing price of ₹299.35 per unit on April 10. It was trading 2.04% lower at ₹293.25 per unit at the time of writing.

What analysts said

In a note on the oil and gas sector, analysts at Nomura said the war risk premium is back as peace talks come to a stall. Furthermore, they added that oil supplies might come under pressure should the US forces complete the blockade of the Strait of Hormuz, which might result in incremental crude oil supply loss of 2.3 million barrels per day (mpbd).

Additionally, a complete blockade of the Strait might also impact LPG supplies for India, as over the past month, India managed to have several LPG tankers –at least eight– safely cross through the Strait.

In a separate analyst's note on OMCs, Nomura stated that an increased windfall tax on diesel and ATF exports should benefit OMCs. While the analysts don’t expect the windfall tax to apply to Reliance’s export refinery (almost half of its total refining capacity), the domestic refineries of Reliance Nayara, MRPL, CPCL, HPCL, Mittal Energy, Numaligarh and others will be subjected to windfall tax on the export of diesel and ATF.

Nomura further noted that the windfall tax on diesel and ATF exports benefits OMCs as standalone refiners might get into agreements with them to sell diesel and ATF at their export realised prices, i.e., post windfall tax, directly translating into savings for OMCs by a similar amount on volumes they source from third-party refiners.

The analysts highlighted that OMCs, especially HPCL, may benefit significantly, as 40% of its diesel retail sales (32% of total refinery throughput) are sourced from standalone refineries.

Additionally, they estimated the current integrated margins for IOCL, BPCL, HPCL to be at $2.2/bbl, $7.3/bbl, and $18.5/bbl, respectively, at current prices, including the benefit from the higher windfall tax.

Crude oil prices

In the international markets, Brent crude oil futures for June delivery soared as much as 9.11% to an intraday high of $103.87 per bbl on Monday. At the time of writing, it was trading 7.03% higher at $101.89 per bbl.

West Texas Index (WTI) crude for expiry in May jumped as much as 9.4% to touch the session’s peak of $105.63 per bbl. It stood at $104.33 per bbl, marking an 8.04% increase at the time of writing.