Russia's Ukraine invasion: RIL, IGL, BPCL, Petronet fall up to 6% as Brent hits $100 mark; what lies ahead

Domestic benchmark indices nosedived over 3% on Thursday as Russia started military operations in two of Ukraine's eastern regions. The Russia-Ukraine crisis has resulted in carnage at Dalal Street, with all the sectoral indices in red, led by oil and gas, realty and auto.

The slump in oil and gas space was fuelled by sharp spike in oil prices, with international Brent crude prices crossing $100 per barrel today for the first time since 2014 amid concerns about a large-scale conflict in Eastern Europe. Traders fear that invasion of Ukraine by Russia, one of the major oil producers, would lead to further sanctions against Moscow, which may impact oil exports. For India, the main effect will be via the indirect impact on global oil prices.

The BSE oil & gas index declined as much as 3.1% to hit a low of 16,933, led by Indraprastha Gas, Gujarat Gas, GAIL India, Petronet LNG, BPCL, Reliance Industries, Mahanagar Gas and HPCL.

Shares of Indraprastha Gas, BPCL, Petronet LNG and Mahanagar Gas have hit their respective 52-week low on BSE today.

Natural gas distribution company Indraprastha Gas dropped 6% to hit a fresh 52-week low of ₹339.50, while state-owned oil marketing company BPCL fell nearly 4% to touch a new low of ₹342.75.

In a similar trend, Petronet LNG shares skid 5% to a 52-week low of ₹195.30, and Mahanagar Gas stock price tumbled 5.2% to hit a fresh low of ₹708.05 on the BSE.

Oil-to telecom major Reliance Industries (RIL), the country’s most valued firm, also saw surge in selling activities with stock price falling 4% to hit an intraday low of ₹2,277.20 on the BSE.

Meanwhile, the U.S. West Texas Intermediate (WTI) crude futures were trading 5% higher at $96.72 a barrel, while the Brent oil futures spiked 5.34% to $102.01 per barrel.

What lies ahead for oil and gas sector

The oil prices have witnessed consistent uptrend in recent weeks amid improving demands and tight supply. The Russia-Ukraine tension has further elevated volatility in the market with Brent crude breaching $100 per barrel mark.

High crude prices are a huge negative for India, which imports around 86% of its annual crude oil requirement. The spike in fuel prices also threaten to disrupt the central government's plan to ramp up investments in infrastructure with new budgetary allocations.

According to a recent report by ICICI Securities, oil prices are likely to remain elevated (well above $90/bbl) for several months, once the U.S. imposes additional sanctions on Russia (including its ability to export oil and gas) following a possible Russian invasion of Ukraine.

“Russia accounts for 11% of global crude-oil exports. If sanctions take about 60% of this off global markets (with China, Belarus and a few other customers possibly defying the sanctions), world crude-oil supply would decline by 3 million barrels per day, and the Brent crude price would likely shoot above $110/bbl,” the report said.

As per the report, the Russia invasion of Ukraine would be a double whammy for the Indian market. On one end, higher crude oil prices will keep CPI inflation higher for longer, forcing the RBI to raise rates aggressively. At the other end, it would impact trade, given that the European Union is the biggest market for India’s exports.