ONGC, Oil India shares advance even as benchmarks tumble amid Middle East tensions; here is why

The equity benchmark indices, S&P BSE SENSEX, and the NSE's NIFTY50, tumbled around 1% at the open, with most sectoral indices, too, trading in negative territory.

However, there were outliers, too, in the market, which were witnessing decent buying interest. The list included names such as oil upstream companies ONGC and Oil India, following a sharp spike in oil prices.

Shares of ONGC and Oil India typically rise when crude oil prices jump because they are upstream companies — meaning they explore for and produce crude oil.

When global oil prices increase, the oil they sell fetches a higher price, directly boosting their revenue and profit margins (assuming production costs remain largely unchanged). In simple terms, higher crude prices mean they earn more for the same barrel of oil, which improves earnings expectations and makes their stocks more attractive to investors.

How shares were faring in early trade

Last seen, both ONGC and Oil India were trading flat after surging in the early trade.

ONGC shares stood at ₹279.35, down 0.13%, while Oil India stock was up 0.5%.

The pullback in stock prices after the initial rally can be attributed to rising anxiety over the escalating conflict. While a spike in crude oil prices benefits upstream companies, a prolonged surge in oil prices would weigh on the broader Indian economy by widening the trade deficit and stoking inflation. Moreover, wars and heightened geopolitical tensions typically unsettle investors, prompting risk aversion and profit-booking across markets.

Oil price update

The prices of crude oil in the international market surged in the early trade on Monday, March 2, following the geopolitical tensions in the Middle East.

The oil prices spiked as the US and Israeli attacks on Iran and retaliatory strikes against Israel and US military installations around the Gulf sent disruptions through the global energy supply chain.

The conflict, following the death of Iranian Supreme Leader Ayatollah Ali Khamenei, has raised concerns over energy supplies.

Oil futures surged more than 8%, with West Texas Intermediate (WTI) crude last trading at $72.52 per barrel and Brent crude at $79.04 per barrel.

Meanwhile, eight countries that are part of the OPEC+ oil group announced Sunday that they will boost production of crude.

The Organisation of the Petroleum Exporting Countries (OPEC), in a Sunday meeting planned before the war began, said it would increase production by 206,000 barrels per day in April, which was more than analysts had expected. The countries boosting output include Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman.