Shares of Indian Oil fell 4% to hit an intraday low of Rs 143 on the BSE, moving closer to their 52-week low of Rs 120. Bharat Petroleum declined 5% to Rs 290 per share, not far from its 52-week low of Rs 263. Meanwhile, HPCL dropped 6.5% to Rs 326 per share, also nearing its 52-week low of Rs 324.40.
Downstream stocks usually come under pressure when oil prices rise, as their input costs increase sharply while their ability to pass these costs on remains limited. These companies buy crude at higher prices, refine it, and sell the end products, but pricing is often regulated, restricting full cost pass-through to consumers. As a result, margins get squeezed when product prices do not rise in line with crude.
The latest surge comes after Iran accused Israel of striking facilities at its South Pars gas field and responded by threatening attacks on oil and gas assets across the Gulf. It launched missiles toward Qatar and Saudi Arabia, declaring energy infrastructure in Saudi Arabia, the UAE and Qatar as legitimate targets. Iran also claimed to have struck an LNG plant in Qatar.
Meanwhile, shipments through the Strait of Hormuz have been disrupted. The route accounts for about 20% of global oil and LNG supply. Production losses in the Middle East are estimated at 7 million to 10 million barrels per day, equivalent to 7% to 10% of global demand.
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Earlier this month, international brokerage firm UBS downgraded the three counters following mounting uncertainty over rising crude oil prices amid US, Israel-Iran war. The international brokerage revised target prices to Rs 175 for IOCL from Rs 190, Rs 365 for BPCL from Rs 425, and Rs 340 for HPCL from Rs 540.
Rising geopolitical tensions and the recent surge in crude prices have created uncertainty around earnings for Indian state-owned oil marketing companies, drawing parallels with the oil market disruption seen in 2022, UBS analysts said.
Given their higher dependence on fuel marketing, these companies also face pressure when profits shift from marketing to refining. Reflecting this, marketing margin estimates for FY27 and FY28 have been cut by 43-45% and 22-26%, respectively.
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From a market standpoint, the biggest losers are likely to be oil refiners, downstream companies and gas players. Elara Securities notes that beyond $110 per barrel, the buffer begins to wear thin.
Oil marketing companies such as HPCL, BPCL and Indian Oil are the most vulnerable, the domestic brokerage said in a note earlier this week. Higher gross refining margins may offer some cushion, but they are unlikely to fully offset the hit from shrinking retail margins and rising LPG losses. At current Brent levels of around $100 per barrel, earnings could decline sharply, in the range of 90% to 190%, unless there is a fuel price hike, tax cuts or higher LPG subsidies.
The brokerage has downgraded IOCL and BPCL to Neutral, while HPCL has been downgraded to Sell.
Where are oil prices headed?
Looking ahead, crude prices could move higher from current levels. According to Kayanat Chainwala of Kotak Securities, oil may rise to $120 per barrel in the near term and potentially touch $150 if the conflict continues beyond a month and geopolitical tensions remain elevated.
Nuvama Institutional Equities echoes the same view. The continued closure of the Strait of Hormuz, which handles around 20 million barrels per day, could push crude prices to the $110–150 per barrel range over the next 4-8 weeks. While the release of strategic reserves may provide some near-term relief, it could also lead to a rebound in demand as inventories are restocked later.
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Broader stress is likely to emerge beyond $125 per barrel. Oil marketing companies could see sharp earnings pressure, LPG subsidy burdens may rise significantly, and risks to LNG throughput could increase. In such a scenario, the likelihood of policy intervention also rises. Overall, the first $40 per barrel increase in crude can typically be managed through tax adjustments, but beyond that, the strain on the system becomes more visible, Elara said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)