Crude Sensitive Stocks Rally Amid Reports of US-Iran Peace Deal

On June 15, crude sensitive stocks gained in early trade. The gains came amid a broad-based rally as the benchmark indices opened higher. Amid the gains shares of fuel retailers, paint makers, and tyre manufacturers led the rally.

Notably, shares of companies which derive a significant part of their orders from the West-Asia region also witnessed gains as the conflict de-escalated post US President Donald Trump’s announcement of

Why Are Crude Sensitive Stocks Gaining

The primary catalyst behind the multi sector rally on D-Street is a fall in international crude oil prices. Global benchmark Brent crude slipped over 4 per cent to trade near $84 per barrel, while US West Texas Intermediate crude dropped past 4.7 per cent to trade close to $81 dollars per barrel. The  decline in crude oil prices followed a geopolitical breakthrough over the weekend when US President Donald Trump announced that a preliminary peace agreement framework between the United States and Iran had been completed in a post on social media platform Truth Social.

“The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade. Ships of the World, start your engines. Let the oil flow!,” Trump said in a post.

HPCL, BPCL, IOCL Post Gains

Among oil marketing companies Bharat Petroleum Corporation Ltd (BPCL) gained 4.72 per cent to trade at an early high of Rs 316.75 apiece on the NSE. Other OMC stocks such as
Hindustan Petroleum Corporation Ltd (HPCL) gained 5.38 per cent to trade at an early high of Rs 409.85 apiece on the NSE while shares of Indian Oil Corporation (IOC) gained 5.34 per cent to trade at an early high of Rs 148.47 apiece. Crude oil refiner Reliance Industries Ltd also gained over 2 per cent to trade at an early high of Rs 1325 apiece on the NSE.

Downstream oil marketing companies stand to benefit immensely from the drop in crude oil prices. Lower raw material costs from dipping crude oil result in higher gross refining margins and a reduction in under-recoveries on fuel retailing. This in turn is likely to have turned investor sentiment positive resulting in gains for shares of domestic OMCs.

One of the key features of the upcoming agreement is the lifting of the US naval blockade on Iranian ports and reopening the critical maritime chokepoint of the Strait of Hormuz. The strait handles roughly 20 per cent of global oil shipments and its closure since late February led to choked energy trade and massive disruptions. Opening the corridor toll free is expected to immediately ease supply constraints and release millions of barrels of crude back into the global market.

However, shares of domestic oil exploration companies like Oil India Ltd and Oil and Natural Gas Corporation (ONGC) fell 1.74 per cent and 1.38 per cent respectively.

Aviation Stocks Zoom
Stocks from allied industries such as InterGlobe Aviation Ltd (IndiGo) touched an early high of Rs 4941.5 apiece on the NSE, up by 4.92 per cent. InterGlobe Aviation (IndiGo) gained as the dip in global crude oil prices significantly lowers the cost of Aviation Turbine Fuel (ATF), which typically accounts for a significant part of an airline's total operating expenses, thereby dramatically boosting its near-term profit margins.

Paint and Tyre Stocks Gain
Paint sector stocks like Asian Paints rallied 3.1 per cent to an intraday high of Rs 2832.7 apiece on the NSE. Other paint sector stocks such as Berger Paints and Kansai Nerolac gained 4.4 per cent and 2.28 per cent in early trade.

Tyre makers such as Apollo Tyres, MRF and JK Tyre & Industries also posted significant gains. MRF shares surged 5 per cent while Apollo Tyres and JK Tyre & Industries also gained 4.94 per cent and 5.75 per cent respectively.

Paint companies rely on crude oil derivatives for their raw material formulations, meaning cheaper crude expands their operating margins. Similarly, tyre manufacturers use petrochemical derivatives like synthetic rubber and carbon black as core inputs, so a drop in crude oil prices lowers production costs and potentially boosts near term profitability.

L&T and KEC Gain Amid De-Escalation
Stocks with significant business in the West-Asian region also gained amid de-escalations in conflict. Shares of Larsen & Toubro and KEC gained   4.08 per cent and 4.25 per cent respectively. Notably, 37 per cent of L&T’s order book comes from West Asia while KEC derives 20 per cent of its order book from the region.