Crude Oil Surge Hits 4-Month Highs
Crude oil prices have recently surged to a four-month high, triggered largely by escalating tensions between Iran and Israel. This geopolitical conflict has led to market jitters, pushing crude prices sharply higher. While some analysts argue that such sharp increases may not sustain in the long term, the immediate impact of this rally is already being felt across various sectors. Let’s break down the key drivers and sectoral effects—both positive and negative—of this sudden spike in crude oil prices.
What Is Driving Crude Oil Prices?
The primary factor behind the recent surge is the geopolitical tension in West Asia, particularly the ongoing conflict between Iran and Israel. Crude oil, being one of the most sensitive global commodities, reacts quickly to geopolitical instability, especially in the Middle East, which is a major oil-producing region.
Historically, crude has been hovering around the $60–$85 per barrel range. But now, as it inches toward the higher end of this band, it's starting to impact a number of sectors significantly.
Positive Impact: Oil Marketing Companies (OMCs)
The biggest beneficiaries of falling or stable crude prices over the past few months have been India’s Oil Marketing Companies. Companies that deal in diesel and petrol saw improved marketing margins, which ranged between ₹9 and ₹13 per litre. Additionally, their under-recoveries on LPG cylinders had dropped significantly—from ₹27 per cylinder last quarter to ₹1-7 per cylinder recently.
However, with crude prices now moving upwards, these margins are under pressure again. The gains seen earlier in 2025 are now at risk of reversal, leading to pressure on OMC stocks in the market.
Negative Impact: Sectors Dependent on Crude-Based Raw Materials
The sectors that will be hit hardest by rising crude prices are those heavily reliant on crude or its derivatives as raw materials. Some of the major affected sectors include:
Paint Industry
Nearly 40% of the raw materials used in the paint industry are derived from crude oil. This includes solvents, resins, and other chemicals. Any spike in crude price directly increases production costs, thereby affecting margins.Aviation Sector
Aviation fuel or ATF (Aviation Turbine Fuel) is a major cost component for airlines, forming roughly 40% of their total raw material expenses. As crude prices rise, so do ATF prices, pressuring already thin margins in the aviation sector.Tyre Industry
Synthetic rubber, carbon black, and various chemicals derived from crude are vital for tyre manufacturing. These components make up about 40% of the raw material costs for tyre companies. Hence, a rise in crude prices translates into increased costs.Cement Sector
In cement manufacturing, around 40–50% of production costs are energy-related, much of which is tied to crude oil prices either directly or through petroleum coke and transport costs. The sector is expected to face margin pressure if high crude prices persist.Specialty Chemicals
Crude oil is also a key input in the specialty chemicals space. These companies rely on complex petrochemical derivatives, and rising crude input costs can hit their profitability hard.
Apart from sectoral implications, a prolonged surge in crude oil also risks increasing India's current account deficit. Higher oil import bills can strain the balance of payments and put pressure on the rupee. Additionally, inflationary concerns arise as transportation, logistics, and fuel costs for industries increase across the board
While the early part of 2025 proved beneficial for OMCs and sectors reliant on crude oil due to relatively low prices, the current geopolitical developments have changed the scenario. If crude prices remain elevated, expect continued pressure on aviation, paint, tyre, cement, and chemical stocks. Meanwhile, OMCs may have to contend with narrowing margins and rising under-recoveries once again. The situation remains fluid, and sectoral performances will be closely tied to how crude prices evolve in the coming weeks.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers are advised to consult financial experts before making investment decisions based on crude oil price movements.
