Indian stock markets saw a surge in shares of oil-related companies on Thursday, March 6, as crude oil prices continued to fall, benefiting industries reliant on petroleum-based products. Over the past four sessions, Brent crude prices have dropped 6.5%, reaching their lowest levels since December 2021, while WTI (West Texas Intermediate) crude fell 5.8%, hitting its lowest since May 2023. The downturn in crude prices, coupled with various factors such as US tariffs on Canadian crude and increased output quotas by major producers, has led to positive movement in shares of aviation, paint, tyre, and oil marketing companies.
Crude Oil Prices and Market Movements
Brent crude’s sharp decline follows a series of global economic events, including the US enacting tariffs on energy imports from Canada and Mexico, as well as major oil producers deciding to increase output quotas for the first time since 2022. While this has put downward pressure on global crude prices, investors are eyeing whether US tariffs on Canadian crude may be eased in the coming days. Still, concerns about the remaining tariffs on Mexican imports and increased production quotas keep investors cautious about further volatility in oil prices.
Asian Paints, Tyre Stocks, and Aviation Stocks Surge
The fall in crude oil prices has provided a boost to companies in sectors that rely heavily on oil derivatives. Asian Paints, for instance, saw its share price rise by more than 2.5%, trading at ₹2,220 apiece on the Bombay Stock Exchange (BSE). Similarly, other paint stocks such as Indigo Paints and Berger Paints followed suit, with Indigo Paints rising 2% to ₹1,039.25, and Berger Paints gaining 2.38% to ₹495.70.
Paint companies use crude oil derivatives—making up 55-60% of their raw material costs. A reduction in crude prices directly lowers production costs, boosting profit margins for companies like Asian Paints and Indigo Paints. This price drop also has a favorable impact on the tyre industry, as synthetic rubber, a key material in tyre production, is derived from oil.
Tyre manufacturers such as JK Tyre, MRF, Balkrishna Industries, and CEAT Ltd. saw their stock prices rise as well. JK Tyre was up by 0.33%, MRF gained over 1%, and Balkrishna Industries and CEAT Ltd. both saw increases of around 1.5%. These companies benefit from cheaper raw materials as crude prices drop, which can lead to lower production costs and improved profit margins.
In the aviation sector, the decline in crude prices also provided a lift, as fuel is a major operational cost for airlines. SpiceJet saw its stock rise by 2.6%, while InterGlobe Aviation (IndiGo) traded with a positive bias. Lower fuel prices reduce operational costs for airlines, making this a favorable development for the sector.
Oil Marketing Companies (OMCs) Benefit
Oil marketing companies (OMCs) like Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOCL) also saw their stock prices rise as crude oil prices dropped. HPCL surged over 3% to ₹337.10, while BPCL rose 2% and IOCL gained over 2%, as cheaper crude reduces procurement costs for these companies.
Impact on Upstream Companies: ONGC and Oil India
While downstream companies like BPCL, HPCL, and IOCL are benefitting from the fall in crude oil prices, upstream companies such as ONGC (Oil and Natural Gas Corporation) and Oil India are seeing some pressure. Both stocks experienced declines on Thursday, with ONGC down by half a percent at ₹228 and Oil India down by 0.27%. These companies’ profit margins typically shrink when crude prices fall, as their extraction costs remain the same, but the revenues generated from selling crude oil decrease.
Looking Ahead: A Mixed Outlook
As oil prices have steadied after their sharp fall over the past four sessions, investors are keenly watching developments regarding US tariffs on Canadian and Mexican crude and major producers’ plans to raise output. While downstream companies in the paint, tyre, and oil marketing sectors stand to benefit from lower crude prices, upstream producers like ONGC and Oil India may continue to face headwinds due to narrower profit margins.
For now, the rally in oil-related stocks presents a promising outlook for investors, particularly in sectors where crude derivatives play a key role in production costs. As oil prices stabilize, the market will closely monitor any further changes in global oil dynamics that could impact these stocks.
