Oil plunge fuels rally in India’s downstream OMCs, sinks upstream exploration stocks

Shares of oil marketing companies (OMCs) surged on Monday, while those of oil explorers declined, as investor sentiment improved following an easing of geopolitical tensions between the US and OPEC member Iran.

Leading the gains on the Nifty Oil & Gas index were the Oil Marketing Company (OMC) stocks.

The index itself saw a rise of over 2%, reaching 11,687.5 during Monday’s trading session.

OMCs outperform explorers following geopolitical easing

Shares of Hindustan Petroleum Corporation (HPCL) witnessed a significant upward movement in trading, soaring by more than 5% and reaching a trading price of 453.65 Indian rupees per share at the close of Monday’s session. 

This surge was not isolated, as other major OMCs operating in the Indian market, specifically Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC), also experienced substantial gains in their respective stock prices. 

BPCL ended Monday’s session with more than 2% gains, while IOC surged over 3%.

The positive momentum across the OMC sector suggests a broad-based optimism or a common market driver influencing the performance of these state-owned fuel retailers.

In contrast to the buoyant performance of the OMCs, the equity performance of oil exploration and production companies presented a mixed, though generally negative, picture. 

Oil India’s shares registered a sharp decline, falling by more than 3.6%.

This downturn for a key upstream player indicates a potential divergence in market sentiment between the downstream and upstream segments of the oil and gas industry. 

However, one notable exception was Oil & Natural Gas Corporation (ONGC), which managed to buck the trend among exploration firms by posting a gain of nearly 3%. But the stock reversed all of those gains to end largely flat.

The overall trend, however, points to a scenario where OMCs are outperforming their upstream counterparts.

Plunging oil prices drive sector divergence

The gains in the OMCs coincided with crude oil declining more than 5% on Monday as easing tensions between the US and Iran erased the geopolitical premium on prices. 

Oil prices marked their steepest single-session drop in over six months on Monday. 

This fall was triggered by US President Donald Trump’s statement that Iran was engaged in “seriously talking” with Washington, a signal of de-escalation with the OPEC member country.

When oil prices decline, OMCs tend to perform well as these companies import crude and refine it into petroleum products such as petrol, diesel and others to sell in the domestic market. 

In comparison, upstream companies such as ONGC and Oil India suffer from a decline in oil prices as they produce crude oil in India. 

De-escalation and broader markets sell-off lead to a price drop

At the time of writing, Brent crude futures fell by $3.06, or 4.4%, to $66.26 per barrel.

Similarly, US West Texas Intermediate crude also saw a decline, dropping $3.03, or 4.7%, to $62.17 per barrel.

The two contracts plummeted from multi-month peak values following remarks made by Trump over the weekend.

A stronger US dollar was cited by analysts as a partial cause of the slump, which was also fueled by a wider sell-off in commodities, particularly significant losses in gold and silver.

“A broader correction across financial markets has added to the downward momentum,” Warren Patterson, head of commodities strategy at ING Group, said in a note.

Just hours before President Trump announced on Saturday that Iran was “seriously talking” about negotiations, Ali Larijani, Iran’s top security official, confirmed that preparations for talks were underway. 

IG market analyst Tony Sycamore pointed to these comments from Trump and reports that the Iranian Revolutionary Guards’ naval forces had canceled planned live-fire exercises as indications of a de-escalation in tensions.

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