Crude Oil Above $100: How Rising Oil Prices Could Impact Indian Stocks

Brent crude oil prices moved back up above $100 per barrel as financial markets in India react to fears about disruption of oil supply from the Middle East through the Strait of Hormuz.

While that may not seem important to some people, rising crude oil prices will have an impact on the rupee, inflation, stock markets and interest rates as India is a major importer of crude oil.

Brent crude breached $105 per barrel on October 8 while the rupee weakened toward ₹96.80 against the US dollar, The Times of India reported. Indian stocks fell sharply on Oct. 8, weighed down by rising oil prices, higher U.S. bond yields and foreign investor selling.

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Why Is Crude Oil Rising Above $100?

Fears of supply disruptions have sent oil prices higher as tensions in the Middle East mount. There have been worries of attacks on ships in the Gulf and the Strait of Hormuz which could interrupt or disrupt oil shipments.

Markets can expect tighter supplies and higher crude prices even before there is a shortage. Such a disruption could lead to a higher import bill for oil importers like India.

But the impact on the Indian stocks will depend on how long the crude prices stay high. A brief spike could have little impact, but a sustained run above $100 could put more persistent pressure on profits and economic growth.

Why Is Expensive Crude a Concern for India?

More than 80% of India’s crude oil needs are imported and the country is sensitive to changes in international oil prices.
“If crude prices go up, India has to pay more for energy imports. This can increase the trade deficit and demand for US dollars, putting pressure on the rupee.

A lower rupee makes imported oil more expensive in terms of local currency. This can then feed through into inflation through higher fuel and transport costs, impacting on businesses and consumers.

With inflation still high, RBI may not have much room to cut rates. Consumption, investment and stock valuations can be weighed down by higher borrowing costs.

Which Indian Stocks Could Be Affected?

1. Oil Marketing Companies

If crude prices go up faster than they can raise petrol and diesel prices, companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum could come under pressure.

However, the impact is not automatic. Government pricing decisions, inventory gains or losses and refining margins can influence individual company performance.

2. Aviation and Tyre Companies

Aviation turbine fuel costs are rising for airlines like IndiGo with oil prices rising. With fuel a major operating cost, further increases can cut into profitability unless the higher cost can be passed on to passengers.

Rubber manufacturers like Apollo Tyres and CEAT may also see higher cost of raw materials. Several inputs used in the making of tyres are linked to crude oil and its derivatives.

Asian Paints, Berger Paints and other paint makers could see similar pressure as prices of petrochemical-based raw materials rise.

3. Oil Producers Could Benefit

Higher oil prices may be beneficial for the revenue and profits of the companies engaged in oil production.

However, the benefits depend on many factors such as production costs, government policies, taxation and any restrictions in prices of domestic fuel. Therefore, the investors should not expect that all oil producers will benefit to the same extent and consider the specific risks for each company.

4. Automobile and Consumer Companies

Higher fuel prices can also eat away at a household’s disposable income, meaning consumers may have less money to spend on discretionary purchases.

This may affect the demand for cars especially fuel intensive vehicles, while companies selling consumer goods may face higher transportation, packaging and distribution costs.

But there’s a risk companies might try to pass those costs onto customers, which could affect demand. Those with stronger pricing power and margins may be better placed to absorb the squeeze.

Conclusion

Crude oil above $100 is a hurdle for the Indian economy and its stock market, especially for companies that use fuel and petrochemical inputs. Meanwhile, higher realizations could be beneficial for upstream oil producers. The key question is whether the oil price surge is a temporary blip or develops into a lasting supply shock.