Crude Oil at $83/bbl – Who Gains and Who Loses
The price of Brent crude has rallied to above $83/bbl and is now at the highest level that oil has since in last 2014. In short, oil is at the highest level in the last 7 years. What is it that has contributed to this sharp rally in oil prices? It is a mix of demand surge and supply constraints that is pushing oil prices higher.
On the demand side, there has been a surge in oil demand in line with the opening up of economies post pandemic and also as industrial capacities get back to normal. On the supply side, OPEC has confirmed in its latest meet that the cartel would only be raising the supply gradually. US supplies are also constrained by the hurricane in Gulf of Mexico.
The sustained drawdowns in the US inventory in the last few weeks indicate that demand continues to far exceed supply. At a macro level, that has negative repercussions for the Indian trade deficit and the value of the rupee. More importantly, higher crude prices means higher inflation since India relies on imports for 80% of its daily crude needs.
Who gains and who loses from the oil prices spike?
The table below captures some of the key gainers from the spike in oil prices:
|
Company |
Gainer / Loser |
Reason |
|
ONGC Ltd and Oil India |
Gainer |
Higher crude prices improves their realization per barrel and boosts profits. Has a positive impact on gas prices also |
|
IOC Ltd |
Gainer |
IOCL gains from better gross refining margins (GRM) and higher inventory translation gains on higher crude prices |
|
GAIL Ltd |
Gainer |
A major beneficiary of higher gas prices since the price of gas is indirectly pegged to crude prices |
The table below captures some of the Key Losers from the spike in oil prices:
|
Company |
Gainer / Loser |
Reason |
|
Asian Paints and Berger |
Loser |
Paint companies passed on most of their cost spikes to end users but that may not be possible beyond a point. Crude is a key input. |
|
MGL, IGL, Gujarat Gas |
Loser |
City gas distributors or CGD players will be up against higher input costs that are likely to squeeze margins |
|
Fertilizer Plants |
Loser |
The gas fired fertilizer plants are likely to see a negative impact of the oil price hike as higher gas prices will be a negative |
Higher crude eventually impact all industries as the cost of petrol and diesel have strong externalities.
Also Read:
Sectors dependent on crude Oil
What is Driving the Rally in Oil Stocks in India?
Crude Oil at $75/bbl – Here comes inflation
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