Oil-sensitive stocks decline as Brent Crude jumps on US-Iran war
What's the story
Asian Paints and JK Tyre were among the major losers in the Indian stock market on Monday. The companies' shares fell by 3% and 5.63%, respectively. The decline was largely attributed to a sharp rise in crude oil prices amid escalating tensions in the Middle East. Brent crude jumped over 6% to around $77-78 per barrel after briefly topping $82 earlier in global trade, amid deepening US-Israel and Iran conflict.
Market impact
Paint and tire stocks take a hit
The surge in crude oil prices has raised concerns over input costs, inflation, and margin pressure for paint manufacturers. Asian Paints shares fell 2.87% to ₹2,307.9 while Berger Paints declined 2.13% and Kansai Nerolac dropped 3.62%. Tire stocks also took a hit with JK Tire plunging 5.63%, CEAT down by 2.56%, and Apollo Tyres falling by nearly 2%.
Company challenges
State-run oil marketing companies also witness heavy selling
State-run oil marketing companies (OMCs) also witnessed heavy selling. Indian Oil Corporation's shares slumped 4.26%, Bharat Petroleum fell by 2.93%, and Hindustan Petroleum declined by 2.45%. OMCs are at risk of higher crude procurement costs and margin strain if retail fuel prices aren't adjusted accordingly. The market usually discounts earnings uncertainty in such scenarios, especially amid persistent geopolitical risks like the current US-Israel-Iran conflict.
Geopolitical significance
Traders are closely watching the situation in Strait of Hormuz
Traders are closely watching the situation in the Strait of Hormuz, a crucial chokepoint for global oil supplies. The area has been marred by military tensions, with shipping activity slowing down significantly. Jorge Leon from Rystad Energy warned that unless de-escalation signals emerge swiftly, markets could see a "significant upward repricing of oil."
Economic implications
Barclays raises Brent crude forecast to $100 per barrel
A $1 rise in crude oil prices adds about $2 billion to India's annual import bill, putting pressure on the trade deficit and potentially reviving inflation fears. The geopolitical situation in the Middle East has led Barclays to raise its forecast for Brent crude futures to $100 per barrel. "Oil markets might have to face their worst fears on Monday," the bank said in its report.