- Indian energy stocks ONGC, IGL, and Reliance gain focus amid Middle East conflict disruptions
- Strait of Hormuz vessel movements drop, freight rates rise 7% week-on-week to $1 million daily
- Jefferies rates ONGC, IOCL, BPCL, IGL, and Reliance as Buy; others Hold or Underperform
Indian energy stocks like ONGC, IGL, and Reliance are in focus as the Middle East conflict continues to disrupt shipping, lift freight costs and tighten global fuel markets, according to Jefferies. Commercial vessel movement through the Strait of Hormuz has fallen to mid-single digits, with crossings down 10% week-on-week over the past seven days.
Jefferies maintains Buy ratings on ONGC, IOCL, BPCL and IGL, while Reliance Industries is also rated Buy. GAIL and Gujarat Energy are rated Hold, while HPCL, Petronet LNG and Mahanagar Gas carry Underperform ratings.
Jefferies estimates the premium of physical crude over paper crude at around $16 a barrel, with physical crude trading at about $119 a barrel. Saudi Arabia has also restarted oil-tanker loading from Yanbu after restoring its East-West pipeline, providing an alternative export route. At the same time, tanker economics have deteriorated sharply.
Freight rates rose 7% week-on-week and are now around eight times higher than at the start of the conflict. The cost of hiring an oil tanker has climbed to around $1 million a day, according to Jefferies.
Diesel, Refining Margins In Focus
Jefferies said Singapore gross refining margins averaged $14.1 a barrel in Q2FY27, while current gasoline, diesel and aviation-fuel cracks stand at around $37, $63 and $61 a barrel, respectively. The brokerage expects refining margins to remain elevated through FY27 as supply chains take time to normalise.
The European diesel crack has climbed to about $95 a barrel, adding to the strength in middle-distillate markets. At the same time, the US is considering a potential diesel export ban, which could further alter global product flows.
For Indian oil marketing companies, however, higher international fuel prices are creating a different problem. Jefferies estimates OMCs are currently making losses of around Rs 11 per litre on petrol and Rs 16 per litre on diesel based on 15-day average pricing, although the losses have narrowed from the levels seen in Q1FY27.
Europe's gas market is also under pressure. EU gas storage is at 71%, versus 83% a year earlier, while spot LNG prices are around $26 per mmbtu. Jefferies expects gas prices to remain elevated as winter approaches.
Meanwhile, petrochemical spreads have rebounded sharply. Average PE, PP and PET margins are 84% higher than at the end of February, helped by damage to major petrochemical facilities in Iran and Saudi Arabia and disrupted Middle East naphtha exports. The stronger spreads are supporting O2C profitability for Reliance Industries.
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