Oil Prices Drop 5% Amid Iran-Israel Ceasefire, Impacting Indian Firms

On 24 June, the international oil market experienced a notable decline, with crude oil prices dropping by 5% to $65.72 per barrel. This downturn coincided with the announcement of a ceasefire between Iran and Israel by US President Donald Trump, which led to a sharp decline in crude oil prices to below $70 a barrel. The fall in oil prices is expected to have a mixed impact on Indian oil companies, with upstream firms such as ONGC and Oil India facing increased pressure on their revenues and profit margins. Conversely, downstream refining companies like Hindustan Petroleum Corp (HPCL) are likely to benefit from the lower crude prices, as their refining margins increase.

The decline in crude oil prices has put significant pressure on the stock prices of upstream oil companies in India. For firms like ONGC and Oil India, which are involved in the extraction of oil, lower global crude prices result in reduced profitability. Oil India, for instance, has seen its stock value depreciate by 4.28%, trading between Rs 465.45 and Rs 451.60. Despite a 9.62% return this year, the company has recorded a five-day drop of 1.80%. The TTM P/E ratio for Oil India stands at $9.60, slightly below the industry average of 10.13. Analysts are divided on the company's long-term prospects, with 11 suggesting a strong buy, four recommending a buy, and one placing the stock under a sell rating.

On the other hand, downstream refining and production companies such as HPCL, BPCL, and Indian Oil are benefiting from the decrease in crude prices. These companies refine crude oil into products like gas, diesel, and jet fuel, and their refining margins increase as crude prices fall. This results in higher profitability for these firms, as the cost of crude materials decreases while the price of refined products remains relatively stable. HPCL, in particular, has shown positive performance in the stock market recently, and BPCL and Indian Oil are also poised to gain from the favorable market conditions. This presents an opportunity for these companies to increase their market share and improve their profit margins through more efficient operations.

Despite the current downturn in crude oil prices, Oil India remains a significant player in the Indian oil and gas industry. The company's stock performance has been mixed, with a mutual fund holding of 9.14% as of 31 March 2025, indicating institutional investor confidence. However, Foreign Institutional Investor (FII) holding has decreased to 8.51% in the current period compared to the last quarter, suggesting a cautious outlook from foreign investors. To navigate the volatile oil markets, Oil India's management must prioritize operational efficiency, cost management, and strategic investment. This approach will help the company mitigate risks and capitalize on the opportunities presented by the dynamic market conditions.