A sharp surge in crude oil prices has emerged as one of the biggest risks for several sectors of the Indian stock market, particularly aviation, paints and oil marketing companies (OMCs). Crude prices have surged sharply in recent sessions, with Brent crude rising beyond $110 per barrel amid escalating geopolitical tensions and supply disruptions linked to the ongoing conflict in the Middle East.
The spike in oil prices has triggered selling across several sectors on Dalal Street, with aviation companies, paint manufacturers and state-run oil marketing firms coming under pressure due to the potential impact on costs and margins.
Aviation companies face direct fuel cost pressure
For aviation companies such as InterGlobe Aviation, which operates IndiGo, higher crude prices directly translate into higher aviation turbine fuel (ATF) costs. Fuel is typically the largest operating expense for airlines, often accounting for 30–40% of total costs.
When crude oil prices rise sharply, airlines are forced to either absorb higher fuel costs or pass them on to passengers through higher fares. However, raising ticket prices may impact passenger demand, which creates a margin squeeze. This is why airline stocks typically fall during periods of oil price spikes.
Paint companies face rising raw material costs
Paint manufacturers such as Asian Paints and Berger Paints India are also sensitive to crude oil movements because a large portion of their raw materials are petroleum derivatives.
Inputs such as solvents, resins and other chemicals are linked to crude oil prices. A sudden spike in oil prices increases input costs, which may pressure operating margins if companies are unable to fully pass the cost increases to consumers through price hikes.
Oil marketing companies face margin compression
State-run oil marketing companies such as Indian Oil Corporation and Bharat Petroleum Corporation also tend to come under pressure when crude prices rise sharply.
According to a recent report by UBS, the recent rally in crude prices and refining margins resembles the oil market disruptions seen in 2022, which negatively impacted the earnings visibility of Indian oil marketing companies.
The brokerage noted that OMCs are negatively leveraged to increases in crude prices because retail fuel prices in India have limited flexibility to adjust quickly, while input costs rise immediately. This creates pressure on marketing margins.
UBS highlighted that Indian state-owned OMCs have a higher marketing exposure relative to refining, meaning they sell more petrol and diesel than they produce in their refineries. As a result, higher crude prices tend to reduce marketing profits even if refining margins remain strong.
UBS downgrades IOCL and BPCL
Reflecting this uncertainty, UBS has downgraded Indian Oil Corporation and Bharat Petroleum Corporation to ‘Neutral’, while cutting its rating on Hindustan Petroleum Corporation to ‘Sell’.
The brokerage also lowered its target prices, cutting the price target for IOCL to ₹175 from ₹190, for BPCL to ₹365 from ₹425, and for HPCL to ₹340 from ₹540.
UBS expects FY27 earnings to be significantly impacted, projecting that profit estimates could fall sharply if crude prices remain elevated.
Even a small crude increase can hit profits
The brokerage noted that even a $5 per barrel increase in crude oil prices, if not passed through to consumers via retail fuel price hikes, could significantly reduce profits for Indian oil marketing companies.
This is because fuel prices in India have remained largely stable since May 2022 despite volatility in global crude markets. As a result, rising crude prices directly squeeze integrated refining and marketing margins.
Higher crude adds pressure across sectors
Beyond aviation, paints and oil marketing companies, higher crude prices also impact sectors such as logistics, chemicals, cement and manufacturing through higher transportation and energy costs.
With Brent crude now trading above $110 per barrel, analysts believe the trajectory of oil prices will remain a key factor influencing market sentiment and sectoral performance in the coming weeks.