The Indian oil and gas sector came under sharp pressure on June 13, following a 13 percent surge in Brent crude prices caused by renewed geopolitical tensions between Israel and Iran. Shares of several downstream energy players, including Indraprastha Gas Limited (IGL), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), Indian Oil Corporation (IOC) and GAIL India, fell by up to 4 percent as investors worried about rising input costs and margin pressures.

IGL leads sell-off among gas stocks

IGL led the decline, tumbling 4.11 percent to close at Rs 194.80, followed closely by BPCL at Rs 589.60 (down 3.86 percent), HPCL at Rs 405.70 (down 2.80 percent), and IOC at Rs 161.90 (down 2.20 percent). GAIL India also dropped 1.95 percent to Rs 188.45.

Other notable losers included Mahanagar Gas Limited, which fell 2.81 percent to Rs 1,332, Petronet LNG, which declined 1.09 percent to Rs 300.30, and Gujarat Gas Limited, which slipped 2.33 percent to Rs 465.55.

Market heavyweight Reliance Industries Limited (RIL) also saw its stock decline by 1.60 percent to Rs 1,416.50.

Brent crude surges to 78 dollars per barrel

Brent crude oil futures for August delivery soared 13.16 percent, reaching 78.48 dollars per barrel, amid concerns that the military conflict between Israel and Iran could disrupt oil supplies. The sharp jump in crude prices has reignited fears of input cost inflation for downstream companies that depend heavily on oil imports.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said:
Sometimes bad news comes in a flood. Close on the heels of the Ahmedabad air tragedy has come the news of Israel’s attack on Iran. The economic consequences of this Israeli strike can be profound if the conflict lingers. Israel has declared that the operation will last several days. Brent crude prices have already surged by around 12 percent and may rise further if Iran retaliates by closing the Strait of Hormuz, severely restricting global oil supply.

Upstream oil stocks rise

While downstream players suffered losses, upstream oil producers benefited from the crude rally. Oil India Limited rose 2.49 percent to Rs 479, and Oil and Natural Gas Corporation (ONGC) gained 0.89 percent to Rs 250.

The impact on the market will depend on how long the conflict drags on. In the near-term, markets will remain in risk-off mode. Sectors that rely on oil derivatives, such as aviation, paints, adhesives and tyres, will take a hit. In contrast, oil producers like ONGC and Oil India will stay resilient, added Vijayakumar.

CGD companies under pressure from LNG prices

JM Financial, in a recent report, pointed out that Asian spot LNG prices are currently hovering around 12 dollars per mmBtu, or 19 percent of Brent, which is much higher than the historical average of 12 percent. The rise in LNG prices is being driven by Europe’s ongoing restocking demand, supply disruptions, and limited additions to global LNG export capacity.

This situation poses a challenge for city gas distribution (CGD) companies such as Gujarat Gas, IGL, MGL, and Petronet LNG, as they face higher procurement costs and potential margin erosion.

The sustained high spot LNG prices could continue to be a near-term concern for all gas companies, particularly for CGD players. This will also weigh on the domestic LNG demand and affect volumes for Petronet LNG, GAIL and GSPL, the report said.

Emkay Global expects fundamentals to prevail

Despite the current volatility, Emkay Global Financial Services maintained its FY26 Brent crude oil assumption at 70 dollars per barrel, stating that fundamentals will eventually prevail.

Brent has moved from 60 dollars a barrel just a month ago to 78 dollars, driven by geopolitical tensions like US-Iran and Russia-Ukraine, along with trade developments between US and China. However, with OPEC+ increasing output, we see no compelling reason to revise the average Brent price upward at this stage, the brokerage stated.

Conclusion

The current market behaviour reflects a classic divergence between upstream and downstream oil players, with oil producers gaining and refiners and distributors losing ground. The elevated crude and LNG prices, fuelled by Middle East tensions, are likely to keep pressure on CGD and OMC companies, while also affecting sectors heavily reliant on petroleum-based inputs.

Until clarity emerges around the duration and intensity of the Israel-Iran conflict, investor sentiment in the oil and gas space is expected to remain cautious and reactive to global news flows.

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