OMCs, paint stocks crack up to 4% on crude oil price spike amid reports of Israeli missile striking Iran

Oil-related stocks will gain focus amid escalating geo-political tensions, leading to significant gains in crude to the tune of $3 per bbl as a swift reaction to reports stating that Israeli missiles had struck a site in Iran, sparking concerns that Middle East oil supply could be disrupted.

The benchmark contracts surged more than $3 then eased slightly. At 0200 GMT, Brent futures were up $2.63, or 3%, to $89.74 a barrel. The most active U.S. West Texas Intermediate contract climbed $2.56, or 3.1%, to $84.66 per barrel.

"If these reports turn out to be true, fears over further escalation will only grow, as well as concerns that we are potentially moving closer towards a situation where oil supply risks lead to actual supply disruptions," Warren Patterson, head of commodities strategy at ING, is quoted as saying in a Reuters report.

Amid such a development, OMC stocks started the day with losses of up to 4 per cent, with BPCL trading with a cut of over 3 per cent at Rs 571, while HPCL and IOC were down by over 3 and 2 per cent, respectively.

Paints stocks, meanwhile, Asian Paints, Berger Paints traded with a cut of up to 2 per cent.

Paint stocks and OMCs tend to suffer amid a rise in crude oil price as their input costs get elevated.

Also, the OMCs will not be in a position to pass on the higher cost to consumers amid the government's measures. Also, in the recent past, the centre slashed the price of petrol and diesel by Rs 2 per litre which could weigh on these companies' profit margins.

G. Chokkalingam, Founder - Equinomics Research is of the view that unless fight between Israel and Iran moderates oil price would remain elevated which will impact OMCs. Even oil producers may not gain as there is a possibility of a rise in cess on domestic oil output. In my view, it is better to stay away from oil & gas sector in short term, the expert added.