Oil and gas stocks came under sharp selling pressure on Monday after crude oil prices surged amid a fresh escalation in the US-Iran conflict. Rising crude prices and fears of prolonged geopolitical tensions dragged the broader market lower, with the energy sector emerging among the biggest losers.
The Nifty Oil & Gas index was down 1.6% in the early market session, with all stocks falling into negative territory. Shares of Chennai Petroleum Corporation declined more than 3%, leading to losses within the sector. Indian Oil Corporation, BPCL, and HPCL were down more than 2.5% each.
Adani Total Gas, GAIL (India), and Mahanagar Gas shares were also down by more than 2%, while Reliance Industries, Petronet LNG, and Indraprastha Gas were down by more than 1%.
Global crude oil prices rose on news of the failure of attempts to resolve differences between the US and Iran through diplomacy. The fears among investors were intensified following an attack carried out by drones on a nuclear plant in the United Arab Emirates.
Brent crude futures rose by more than 2%, rising above $111 per barrel, levels last seen during the early part of May. WTI crude futures rose and moved above the $107 per barrel mark.
A rise in oil prices made investors anxious over the increased costs of refining and marketing firms in India.
However, the recent increase of Rs. 3 per liter in the prices of petrol and diesel was insufficient to reverse the rising under-recoveries of state-owned oil marketing firms, experts opined.
According to Emkay Global, under-recoveries on automobile fuels remained high due to price rises. Experts stated that oil companies were facing challenges due to increasing crude oil prices and LPG prices.
With respect to international LPG prices, daily under-recoveries on cooking gas might range from Rs. 200 crore to Rs. 400 crore, Emkay Global pointed out.
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Market professionals stated that persistent geopolitical risks would drive fuel price increases in the coming months. Moreover, they highlighted that crude price fluctuations might persistently affect oil marketing and city gas distribution firms.
While maintaining caution, Emkay Global maintained its ‘Add’ recommendation on the stocks of Indian Oil Corporation, BPCL, HPCL, Indraprastha Gas, and Mahanagar Gas.