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Any further escalation in the Middle-East crisis or a sharp rise in crude prices could pose a serious risk to earnings, especially for Indian Oil Marketing Companies (OMCs) and gas companies.
However, Indian OMCs and gas companies are currently facing mixed impacts from the ongoing volatility in crude oil prices. According to a report by ICICI Securities, even with crude currently trading at USD 73-74 per barrel, there is already a material impact on the earnings of oil marketing companies (OMCs), while upstream companies could see some upside. The report stated, "We estimate a material impact on OMC earnings and upside risk to upstream earnings even with crude at USD 73-74/bbl as is the case now". It also noted that any further spikes in crude prices are unlikely to significantly boost upstream company earnings but could negatively affect OMCs and gas companies. This is because the price of LNG, which is linked to crude, will also rise steadily, increasing input costs for gas utilities. Despite these developments, the report stated that analysts of crude have not made any changes to their estimates or views for now. They plan to monitor the crude oil markets closely over the next few weeks before taking a more definitive stance on the oil and gas coverage universe. The report highlighted that the current rebound in crude prices remains lower than the average crude prices recorded in FY25 and well below the last four-year average. As a result, the overall impact on the profitability of Indian oil and gas companies is not considered unreasonable at this stage. However, the report acknowledges the sharp movements in stock prices of energy companies, reflecting market concerns about the Middle East situation. A major concern is the potential disruption of oil and gas shipments through the strategic Strait of Hormuz. There is also some fear, although remote, that NATO could be drawn into the conflict if Iran targets any Western military bases in the region. Currently, Brent crude is priced around USD 75 per barrel, which is about USD 6-7 per barrel higher than the analysts' FY26 estimate of USD 68. As per the report, this presents a downside risk to earnings per share (EPS) estimates for OMCs, while upstream companies may benefit. Still, crude prices remain USD 9 below the average of FY22-25 and USD 4 below the FY25 average, indicating that supply remains adequate and demand concerns continue to weigh on the market. For now, the report maintained the estimates but warned that any further escalation in the conflict or a sharp rise in prices could pose a serious risk to earnings, especially for OMCs and gas companies. (ANI)
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