Shares of oil marketing companies (OMCs) rallied sharply on Monday, with HPCL leading gains, after global crude oil prices corrected significantly amid rising optimism over a possible peace agreement between the US and Iran.
HPCL shares surged 5.67% to ₹411.75, while BPCL climbed 3.82% to ₹306.90 and Indian Oil Corporation (IOC) advanced 3.68% to ₹144.60 during the session.
The rally in OMC stocks came after Brent crude prices slipped sharply below the $100-per-barrel mark as markets reacted positively to reports of progress in US-Iran negotiations.
Investor sentiment improved after signs emerged that diplomatic talks between the US and Iran could help ease geopolitical tensions in the Middle East and ensure smoother crude oil movement through the strategically important Strait of Hormuz.
Why falling crude prices help OMCs
Oil marketing companies such as HPCL, BPCL and IOC are among the key beneficiaries of declining crude oil prices because lower raw material costs generally improve refining margins and marketing profitability.
The recent correction in crude prices has eased concerns over elevated fuel import costs, inventory losses and pressure on margins that had intensified during the sharp spike in oil prices earlier this year amid escalating tensions in the Middle East.
Market participants are also optimistic that easing geopolitical risks could stabilise global energy supply chains and reduce volatility in oil markets going forward.
Crude oil prices had surged sharply over recent months due to concerns surrounding disruptions in the Strait of Hormuz, one of the world’s most critical oil shipping routes. However, hopes of a diplomatic breakthrough have now triggered profit booking in crude oil, leading to renewed buying interest in OMC stocks.