HPCL, BPCL, IOC slip as Brent inches towards $77 amid escalating Iran-Israel war, ONGC shares rise

June 19, 2025 | Mumbai:
Shares of India’s top oil marketing companies—Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation (IOC)—fell in Wednesday’s trade as Brent crude oil prices edged closer to $77 per barrel, driven by escalating tensions in the Middle East. In contrast, upstream major Oil and Natural Gas Corporation (ONGC) saw a modest rise in its share price, reflecting investor optimism over improving realizations.

OMCs Feel the Heat

By mid-day, HPCL had slipped 2.3%, BPCL was down 1.9%, and IOC had declined by 1.6% on the NSE. The pressure comes amid rising crude oil prices which pose a significant risk to the refining margins of oil marketing companies that sell fuel at government-regulated prices in India.

“OMCs are very sensitive to changes in crude prices. When crude rises sharply, they either take a hit on margins or delay price revisions to avoid political fallout,” said Amit Hiranandani, Senior Energy Analyst at ICICI Securities. “With the Brent moving closer to $77, concerns are mounting over retail price hikes or under-recoveries.”

Brent Rises on Geopolitical Risk

The Iran-Israel conflict, which flared again this week after a reported drone strike on strategic infrastructure in central Iran, has reignited fears of supply disruptions in the already tight global oil market. Although Iran is under U.S. sanctions, it continues to export oil through informal networks, and any disruption in its flows can impact global balances.

“Crude prices are once again reflecting geopolitical risk premiums. The Strait of Hormuz, through which a fifth of the world’s oil flows, becomes critical in such situations,” noted Vanessa Zhou, Global Commodities Strategist at Citi Research. “Even indirect escalations between Iran and Israel have the potential to spike prices.”

ONGC, Upstream Players Shine

Amid the uncertainty, ONGC gained 1.7% as investors bet on higher realizations for upstream producers. With every $1 increase in crude, ONGC stands to benefit through enhanced profitability from domestic and overseas oil blocks.

“Increasing crude prices directly benefit ONGC due to its upstream operations,” said Mahesh Chopra, Director of Research at Prabhudas Lilladher. “Moreover, higher realizations also aid its subsidiary—OVL (ONGC Videsh)—which has substantial assets in Iran, Iraq, and Venezuela.”

Market participants also noted that ONGC has been relatively undervalued compared to global peers, and the current situation might act as a rerating trigger in the short term.

Broader Market and Sectoral Impact

The Nifty Energy Index was down 0.5%, primarily due to OMC losses, even as upstream companies and select gas utility stocks managed to hold ground. The benchmark Nifty 50, meanwhile, remained flat with a marginal gain of 0.2%, supported by banking and IT names.

The INR also saw slight weakness against the USD, closing at ₹83.19, adding further import cost pressure on oil companies. A weaker rupee inflates the landed cost of crude and other energy imports.

Government’s Role and Price Control Dynamics

Investors are also watching the government's stance on fuel price revisions. While retail prices have not changed significantly over the past few months, any sharp rally in crude may force the government to allow OMCs to pass on the cost or offer subsidy support.

"State elections in several key states later this year could influence how fuel prices are handled. OMCs might bear some of the brunt if the government chooses price stability over margin protection," said Ritika Naik, Policy Researcher at India Ratings & Research.

Investor Outlook

For investors, the scenario presents a mixed bag:

• Avoid OMCs in the near term due to compressed refining margins and potential price controls.

• Stay constructive on upstream producers like ONGC and Oil India amid rising crude price trajectory.

• Monitor geopolitical developments closely, as these will directly impact sector performance.

"From a valuation perspective, ONGC remains attractive, especially if crude sustains above $75. However, risk-averse investors may want to wait for geopolitical stability before entering the OMC space," concluded Rahul Baweja, Market Strategist at HDFC Securities.

As Brent inches toward the $77 mark, the divergence in oil sector performance continues. With the Iran-Israel conflict still evolving, Indian energy equities are entering a volatile phase, where upstream gain may mean downstream pain. For now, ONGC may offer a safe haven, while OMCs face an uphill climb against geopolitical headwinds and policy uncertainties.