Crude Oil Prices Drop to Six-Month Low, Boosting Refinery, Paint, and Tyre Stocks

Oil Price Decline Spurs Gains in Paint, Refining, and Tyre Stocks

Mumbai: Indian equity markets witnessed a sharp surge in crude-sensitive stocks on Tuesday as Brent crude prices slipped below $70 per barrel, marking a six-month low. Stocks of oil refiners, paint manufacturers, and tyre companies rallied, with Asian Paints, BPCL, HPCL, and Apollo Tyres gaining up to 4.5% in intraday trade.

The drop in crude oil prices, which has extended over 6% in the last four trading sessions, is providing cost relief to industries that heavily rely on petroleum-based raw materials, leading to improved profit margins and stronger investor sentiment.

Brent Crude Forecast Revised Lower

Amid falling global oil demand and an increase in supply from the OPEC+ alliance, Morgan Stanley has revised its Brent crude price estimate for the second half of 2025, now expecting the benchmark to trade in the $60 per barrel range. The downward revision reflects concerns over global economic slowdown and geopolitical uncertainties impacting energy consumption.

Key Beneficiaries of Falling Crude Prices

1) Oil Refining & Marketing Companies Gain as Input Costs Drop

For downstream oil refiners, a decline in crude oil prices translates into lower input costs, improved refining margins, and enhanced profitability.

• Shares of Chennai Petro, Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation Ltd (HPCL), and Bharat Petroleum Corporation Ltd (BPCL) surged between 2-10% as investors bet on stronger margins.
• Refiners benefit from cheaper crude procurement, provided product demand remains steady, allowing them to expand their marketing margins.

2) Paint Companies Rally on Lower Raw Material Costs

The decorative paints sector, which is highly raw material-intensive, is one of the biggest beneficiaries of falling crude oil prices. The paint industry relies on over 300 raw materials, most of which are petroleum-based, making crude price fluctuations a direct driver of profitability.

• Raw materials account for 55-60% of input costs for paint manufacturers. A decline in crude prices reduces the cost of key ingredients, such as titanium dioxide, a major component in white paint.
• This results in higher operating margins for paint companies, driving investor confidence and stock price appreciation.
• Shares of Berger Paints, Kansai Nerolac, and Asian Paints jumped 2-4% in trade, reflecting the positive outlook.

3) Tyre Manufacturers Benefit from Lower Synthetic Rubber Costs

Crude oil is a primary source of synthetic rubber and petrochemical derivatives used in tyre manufacturing. As oil prices decline, the cost of producing rubber-based materials also drops, lowering overall production costs for tyre companies.

• With a reduction in raw material expenses, tyre manufacturers can expand their profit margins and enhance pricing power.
• Shares of Apollo Tyres, MRF, and CEAT saw notable gains, driven by expectations of higher profitability in the coming quarters.

Potential Negative Impact on Oil Producers

While lower crude prices benefit refiners, paint makers, and tyre companies, they negatively impact upstream oil exploration and production companies.

• Oil drilling stocks like ONGC and Oil India declined as falling crude prices compress profit margins for oil producers.
• Refined product prices do not always decline at the same pace as crude oil, leading to potential inventory losses for companies holding stockpiles purchased at higher prices.

Market Outlook: Will the Rally Sustain?

With Brent crude expected to remain under pressure, analysts predict continued strength in crude-sensitive stocks in the near term. However, the impact on broader markets will depend on global supply-demand dynamics, geopolitical developments, and central bank policies influencing inflation and interest rates.

Investors should closely watch oil price trends and sector-specific developments to capitalize on opportunities arising from this shifting commodity landscape.