Oil Refiners To Feel The Heat From US-Iran Face Off

IOC, HPCL, BPCL, Reliance Industries (RIL), others are staring at a possible fallout on their earnings because of the US-Iran stand off which will see an obvious flare-up in the crude oil prices.

The reason: tensions running high in the Middle East after a US strike near Baghdad international airport killed a top Iranian general and a senior official of Iraq’s paramilitary force.

Following the news break oil prices spiked.

Futures in New York and London surged more than 4% after the attack.

The US strike killed Qassem Soleimani, the Iranian general who led the Revolutionary Guards’ Quds force and and Abu Mahdi al-Muhandis, the deputy head of the Iran-backed Iraqi Popular Mobilization Forces (PMF), were among those killed in the attack.

The latest development has once again proved the vulnerability of crude oil sources in the region.

The US and Iran are already facing off over President Donald Trump’s crippling economic campaign against Tehran and suspected Iranian reprisals.

Saudi Arabia’s energy facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year – a region that includes OPEC’s five biggest producers.

Meanwhile, US Marines have arrested the leaders of two of the most powerful pro-Iranian militias in Iraq.

After the news break, Israeli military is placed on high alert.

The latest development has added uncertainty in the markets – a big negative for the risk averse investors. US futures dropped following the news out of Iraq.

Both, Iran and Iraq pumped more than 67 Lakh barrels a day of oil last month, more than one-fifth of OPEC output.

The spike in crude oil prices is a bad news for a host of Indian industries that use crude derivatives as inputs, from aviation to paints, tyre, oil & gas (OMCs) and auto ancillary firms.

The downstream OMCs (BPCL, HPCL and IOC) and Castrol will possibility witness a moderation in marketing margins on auto fuels: a $10 a barrel rise in global crude prices may require OMCs to increase retail prices of diesel and petrol by Rs 5-6 litre in the following fortnight.

A sharp jump in global crude prices may put pressure on refining margins.

For import dependent country such as India any rise in crude prices may have an impact on government finances.

Net net rising crude prices ahead of the union budget are not good news flow for the Indian economy and any further rise could increase the govts problem on the fiscal deficit side and also pose a problem for consuming sectors like carbon black, tyres, rubber chemicals, paints, speciality chem, airline players and the omc players.

Markets would now closely watch action from Iran’s side following this US attack and until then crude prices are expected to remain volatile.

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