Crude Oil Prices Drop: What It Means For IndiGo, HPCL, BPCL?

Crude oil prices have plunged to their lowest levels since February 2021, following OPEC’s announcement that it will increase oil production from June onwards. This significant drop in crude prices is expected to have a positive impact on sectors heavily dependent on fuel costs, particularly airlines and oil marketing companies (OMCs). With approximately 60% of an airline's operating cost attributed to crude, falling oil prices could substantially improve margins for players like IndiGo. Interestingly, while fuel prices may decline, airfares typically remain unchanged, allowing airlines to benefit from improved profitability, especially on longer routes.

Avinash Gorakshakar, Head of Research at Profitmart Securities, believes this creates a strong case for considering IndiGo as a stock to add on any market dip. On the OMC front, he suggests that HPCL and BPCL are better positioned to benefit, thanks to their extensive marketing networks and exposure to petroleum products such as diesel and petrol. Lower crude prices would help enhance their gross refining margins. While Reliance also stands to gain, Gorakshakar favours direct OMCs like HPCL and BPCL as top picks in the current scenario.