IndiGo, Indian Oil and other crude-sensitive stocks rally up to 4% as oil dips below $105/bbl. Where are prices headed?

ETMarkets.com

In today's session, IndiGo shares jumped 4% to Rs 5,118, while Bharat Petroleum Corporation gained 3% to Rs 301 per share. Hindustan Petroleum shares rallied 3.5% to Rs 361 per share, while Indian Oil shares were up 3%. On the flipside, upstream stocks ONGC and Oil India were down up to 2%.

Downstream stocks usually come under pressure when oil prices rise, as their input costs increase sharply while their ability to pass on these costs remains limited. These companies buy crude at higher prices, refine it and sell the end products, but pricing is often regulated, restricting full cost pass-through to consumers. As a result, margins get squeezed when product prices do not rise in line with crude.

Crude oil prices on November 3

Brent crude futures fell 40 cents, or 0.5%, to $104.43 a barrel, while US West Texas Intermediate (WTI) crude fell 24 cents, or 0.25%, to $96.30 a barrel. In the previous session, Brent crude futures had settled $8.66, or 7.63%, lower at $104.77 a barrel. Brent crude ended October at its highest level in six months amid concerns that tensions in the Middle East could intensify again following Tuesday's US midterm elections.

The drop comes despite reports that the United States had carried out a strike on Iran's Qeshm Island, fuelling concerns over a possible escalation of the eight-month conflict and prolonged disruptions to oil supplies from the Middle East. The Wall Street Journal reported, citing US officials, that the United States had struck Iran's Qeshm Island. Some officials described the attacks as defensive operations aimed at preventing Iran from freely targeting commercial vessels in the Strait of Hormuz.

The conflict between the US and Iran, which began in late February, has significantly curtailed shipping traffic through the Strait of Hormuz. The waterway previously handled around a fifth of global crude oil and natural gas supplies.

Separately, the United States will host delegations from Ukraine and Russia in Abu Dhabi on November 10-11 for discussions on ending Moscow's war against Ukraine, post-war security arrangements and de-escalation.

Oil price outlook

Goldman Sachs has revised its oil price forecasts upwards, citing heightened risks to global supply, and warned that Brent crude could climb to $140 a barrel in 2027 if oil production in the Gulf region remains significantly below its 2025 average. The investment bank raised its December Brent crude price forecast to $105 a barrel from $90 earlier. Its forecast for US West Texas Intermediate (WTI) crude was also raised to $94 a barrel from $81.

In an upside scenario, Brent crude could reach $140 a barrel and average around $130 in 2027 if Gulf oil production remains 3.5 million barrels per day below its 2025 average, Reuters reported, citing Goldman Sachs' projections.

The bank expects oil markets to price in a higher geopolitical risk premium, taking into account the possibility of disruptions to Middle East supplies, the historical duration of major supply shocks and concerns that a lasting diplomatic breakthrough may be difficult to secure.

Meanwhile, uncertainty surrounding the course of the conflict continues to cloud the oil price outlook. JPMorgan analysts said it remained difficult to assess how the war would unfold. At the beginning of the conflict, the bank had expected the US administration to avoid crossing certain economic thresholds. However, seven months later, several of those limits had been breached, with no clear strategy for bringing the conflict to an end.