Oil Giants Face Margin Squeeze As Crude Crosses One Hundred Dollars

High crude oil prices driven by war in the Middle East are putting pressure on the profits of three state-run oil companies. Hindustan Petroleum Corporation, Bharat Petroleum Corporation, and Indian Oil Corporation face margin squeezes if retail fuel prices do not change.

Market Impact And Risks

Dhaval Popat from Choice Institutional Equities states that Hindustan Petroleum faces the highest earnings pressure. Indian Oil and Bharat Petroleum follow closely behind as elevated crude costs reduce marketing margins. City gas distribution firms like IGL, MGL, Gujarat Gas, and Adani Total Gas also face risks if higher gas purchase costs cannot be passed on to buyers. GAIL and Petronet LNG remain exposed to volume weakness and gas-sourcing risks despite having regulated businesses.

Global Supply Pressures

Kaynat Chainwala from Kotak Neo notes that Brent crude moved up toward $107 a barrel due to ongoing supply risks. Tehran plans to step up strikes on tankers near the Strait of Hormuz using new tactics. A Houthi strike also caused a limited fire at an Aramco office building in Dhahran. Meanwhile, Saudi Arabia plans to raise the capacity of its East-West pipeline to 10 million barrels per day over the next two to three years. The International Energy Agency warns that limited Russian refining capacity will not change the global diesel balance.

Context

Oil marketing companies in India buy crude oil to refine into petrol and diesel for retail sale. When global crude prices rise sharply, these companies often absorb the higher costs if retail prices remain frozen, which directly impacts their quarterly earnings.