New Delhi: 

For July, crude oil on the Multi Commodity Exchange (MCX) rose ₹57 or 0.99% to ₹5,788 per barrel in active trading of 11,222 lots. Analysts commented that the domestic price increased due to increased betting by participants on tightening supply and resilient demand.

On a very volatile trading day on Thursday, crude oil prices in India jumped with firm spot demand and renewed geopolitical tensions, whereas global oil benchmarks lost ground. Though the Indian rupee was slightly up against the US dollar, major Indian petroleum companies fell on the price rise.

 Global Crude Slips Despite India Spike:

 “Since India is importing most of the crude oil, it can't remain isolated by global crude oil prices. Israel's attack on Iran yesterday is going to create a crisis in the Middle East and will fuel uncertainty in the crude oil market. Iran's crude oil production accounts for approximately 3.3% of the global oil supply. This is equivalent to about 3.4 million barrels per day (bpd), according to industry analysts.”

He added, “Iran is a significant player in the global oil market, holding the fourth-largest proven oil reserves. IDF's attack on Iran has sent Brent go past $78/ barrel. WTI is over 77/bbl. The rising crude prices and Indian rupee (vs $) are intertwined. Crude oil prices going up has an inflationary impact on nations that are Net importers of crude oil. For countries that have a negative balance of payment and are net importers of crude, the spike in crude also makes a dent on their currency's value in international market.”

Interestingly, while Indian futures increased, international crude benchmarks were down slightly. The West Texas Intermediate (WTI) crude was down 0.70% to $67.67 per barrel, and Brent crude was down 0.77% to $69.23 per barrel on the New York exchange. The decline in global benchmarks was mostly a correction from earlier spikes due to rising tensions in the Middle East and mixed economic signals in the U.S. and China.

Rupee Strengthens on Lower Global Crude and Market Optimism:

Despite fluctuating oil prices, the Indian rupee appreciated by 7 paise to 85.46 against the US dollar in early Thursday trade, supported by a softer dollar, falling global oil prices, and a positive trend in domestic equity markets. The currency opened at 85.43 before settling slightly weaker but still higher than the previous day’s close of 85.53.

Bisht added, “Are the petrol. diesel prices really free-market driven? If they indeed were driven by market forces alone, HPCL, BPCL and Indian Oil would have raised their pump prices without much ado. But that is not going to happen. The Bihar elections loom large and hence the OMCs will bear the brunt of increased crude costs. Their margins will go down and this will impact the bottom line. That is reflected in their stock prices going southwards. For ONGC and Oil India, the prices that will be paid by OMCs will be higher and hence their stocks would look upwards.”

Oil Company Stocks Tumble on Market Caution:

Sudhir Bisht said, “While fuel and light account for about 6.8% of the Consumer Price Index (CPI), including LPG (0.64%) and kerosene (0.17%), petrol and diesel, though not directly listed, significantly impact the 8.59% CPI weight under transport and communication. Despite recent geopolitical tensions, he doesn't see an immediate case for a price hike.

“Back in June 2022, the Indian crude basket stood at $121.28 per barrel, with petrol in Delhi priced around ₹96.72/litre and USD-INR at 78. Today, crude is down to $67.44/bbl, but the rupee is weaker at 85.66. Even then, there’s no compelling reason for retail price hikes,” he said, suggesting that elections like those in Bihar may also delay any upward revision as the government tries to shield consumers.

He warned that global oil forecasts often go awry due to the volatile geopolitical landscape. “The world is highly uncertain,US-Europe ties are strained, the US-China relationship swings between rivalry and cooperation, and US support for Israel appears less predictable. Meanwhile, the Ukraine-Russia war drags on, with Washington no longer pressing as hard on Moscow as before.”

Bisht concluded that while prolonged conflict in the Middle East may push oil prices up, it could also dampen global economic growth, limiting energy demand from transport and industry. “India’s strategy can’t be framed in isolation anymore, our economic responses are now deeply enmeshed with global geopolitics. In today’s world, where war and peace swap places constantly, long-term energy planning is becoming increasingly difficult."

Amid rising domestic oil futures, shares of major oil marketing and refining companies declined as investors feared narrowing margins. Bharat Petroleum Corporation Limited (BPCL) shares were down 4.25% as of 2:25 PM, while Indian Oil Corporation (IOC) fell 1.5%. Reliance Industries, India's largest private-sector oil refiner, also saw a 0.7% drop.

Bisht said, “Are the petrol, and diesel prices really free-market driven? If they indeed were driven by market forces alone, HPCL, BPCL and Indian Oil would have raised their pump prices without much ado. But that is not going to happen. The Bihar elections loom large and hence the OMCs will bear the brunt of increased crude costs. Their margins will go down and this will impact the bottom line. That is reflected in their stock prices going southwards. For ONGC and Oil India, the prices that will be paid by OMCs will be higher and hence their stocks would look upwards.”

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