Oil prices jump 4.5% as Middle East violence rattles markets; HPCL, BPCL shares fall

The crisis fuelled fresh worries about global inflation. Oil prices were already elevated on supply concerns caused by output cuts by Russia and Saudi Arabia.

"The ongoing conflict in Israel is an unforeseen event impacting the market, and its effects may take some time to be fully absorbed. Monitoring the situation closely, especially regarding the potential involvement of other actors like Iran, is essential. The possibility of a third front involving Iran is a significant concern as it could trigger a sharp increase in crude oil prices," said Santosh Meena, Head of Research at Swastika Investmart.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the Israel-Hamas conflict has introduced a huge uncertainty for the markets. "It is important to understand that even though the death and destruction are tragic, presently it is unlikely to cause major disruption in oil supplies thereby impacting major oil importers like India. But the situation will change if Iran, a major Hamas supporter, is drawn into the war. That can disrupt oil supplies causing a spike in crude, which can trigger a risk-off in the market," Vijayakumar said.

The analyst advised investors to be cautious and refrain from taking big risks. "Wait for the developments to unfold. Long-term investors can slowly accumulate high-quality stocks on declines."

As crude oil prices are rising, oil stocks were in focus in today's trade. Shares of Reliance Industries, Bharat Petroleum, Castrol India, Gujarat Gas, Indian Oil Corporation, and Mahanagar Gas plunged up to 3%.

CNBC-TV18 recently reported that public sector oil marketing companies such as Indian Oil Corp, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd are already incurring cash losses on diesel.

OMCs estimate they are facing an under-recovery of Rs 9 to Rs 10 per litre on the sale of diesel, which could have been higher had it not been for the strong refining margins and the set-off available against export cess, which is helping companies absorb some of the marketing loss.

The report said that diesel is a pain point with some cash loss already being incurred. On petrol, the companies are estimated to be suffering an under-recovery of Re 1 to Rs 2 a litre.

"Events in the Middle East over the weekend (i.e. the attack on Israel) presents a risk for stocks as such events could possibly lead to a surge in oil prices thus putting at risk the recent US disinflation narrative, in our view," said Nomura.

Prashanth Tapse of Mehta Equities said a knee-jerk spike in crude oil prices was a given due to the ongoing conflict.

"Oil futures have spiked more than 5% to above $87 per barrel following the outbreak of a conflict between Israel & Hamas, as a surging crude oil could impact domestic inflation and would see interest rates at an elevated level for a prolonged period. Keeping the mood bearish, the US bond yields have continued their upward bias as the 10-year treasury flared at 4.799%, while the yield on the 2-year Treasury has spiked to 5.085%, scaling a 16-year high,” he said.