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International standard Brent crude has reached the threshold of $ 100 per barrel amid the growing geopolitical crisis in West Asia and the Red Sea region and fears of supply disruption. This unprecedented surge in the global energy market has created a big headache for India’s major state oil marketing companies—Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation (IOCL). The Indian market imports more than 85% of its crude oil needs, so whenever crude prices rise in the international market, refining and retail marketing margins start shrinking rapidly. Due to lack of immediate increase in the retail prices of petrol and diesel at the domestic level, companies have to face loss (under-recovery) on the sale of every liter of fuel, which has a direct impact on their net profit and quarterly results.
According to analysts, oil marketing companies’ profits depend on two main parameters: gross refining margin (GRM) and auto fuel marketing margin. When crude oil remains in the range of $75 to $85 per barrel, the marketing margins of these companies remain stable and refining also provides balanced returns. However, as soon as crude oil crosses $90 to $100, the losses on marketing of petrol and diesel completely outweigh the refining profits. In the current situation where the input costs of refineries have increased, the scope for increasing pump prices due to electoral or political pressure becomes limited. This is why global brokerage houses have adopted a cautious stance on the OMC sector and have cut the earnings per share (EPS) and target prices of many companies.
| company | Sensitivity to increase in crude oil (Risk) | Brokerage Outlook | Main Strengths/Weaknesses |
| HPCL | Most Sensitive (High Risk) | Sell / Cautious | Marketing volumes outweighed refining capacity, causing the sharpest hit to margins. |
| BPCL | Moderate Risk | Neutral/Hold | Good balance of refinery and marketing, strong cash flows and attractive dividend yield. |
| IOCL | Lower Risk | Neutral / Accumulate | Backed by vast pipeline networks, petrochemical diversification and strong government support. |
According to brokerage analysis, HPCL faces the most pressure in this entire cycle as its retail sales far exceed its own refining capacity, forcing it to buy products from other refineries. On the other hand, Indian Oil (IOCL)’s vast pipeline network and petrochemical business provide it with relatively greater flexibility to deal with crude oil shocks.
According to market experts, at the current levels, investors should avoid taking major decisions in haste and adopt a clear strategy as per their situation:
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For Fresh Investors: Unless crude oil comes down from $95-$100 levels and stabilizes in the $85 range, one should avoid aggressive buying in OMC shares. If investment is to be made in the energy sector, then one can keep an eye on upstream companies like ONGC or Oil India, which directly benefit from high crude oil prices.
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Existing Traders and Short-Term Investors: Short-term traders should follow strict stop-losses. If shares break their 200-day moving average (200 DMA), reducing positions or booking profits may be a better option as there will be uncertainty in the near term.
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Long-Term and Dividend Investors: Long-term investors who are in these stocks primarily for the high dividend yield should not indulge in panic selling. Historically, it has been difficult for crude oil prices to stay above $100 for long. Once geopolitical tensions subside and crude returns to normal, these companies are likely to see a sharp V-shaped recovery in their margins.