US-Iran Agreement Slashes Oil Prices: E&P, OMC, Refinery Stocks Face Headwinds, Chemicals Gain

What the US-Iran agreement changed for oil prices

International crude oil prices experienced a sharp decline on Monday following reports of a peace agreement between the United States and Iran. This deal aims to halt military operations and restore normal maritime traffic through the strategic Strait of Hormuz, a vital oil shipping route that had been a flashpoint for supply disruption fears. Both US President Donald Trump and Pakistan's Prime Minister Shehbaz Sharif confirmed the agreement, which includes an immediate and permanent cessation of military operations.

The market reacted swiftly to the news, with Brent crude futures falling significantly, as did US West Texas Intermediate (WTI) prices.

This decline reflects an easing of geopolitical tensions in the Middle East and a reduction in the perceived risk to global oil supplies.

Why lower oil prices matter for PSX energy and chemical stocks

Lower international crude oil prices have a direct and varied impact on several sectors listed on the Pakistan Stock Exchange. For oil and gas exploration companies, their revenue is often linked to global crude prices. Oil marketing companies and refineries, which hold significant inventory, can face losses when prices fall sharply. Conversely, sectors that use crude oil derivatives as feedstock, such as chemicals, or those that rely on oil-linked fuels for power generation, stand to benefit from reduced input costs.

Which stocks, and why

Pakistan's Oil & Gas Exploration companies are typically exposed to international crude price movements because their wellhead prices are often linked to global benchmarks. A sharp decline in crude prices is generally negative for their top-line revenue. Companies like Oil & Gas Development Company, Pakistan Petroleum, Pakistan Oilfields, and Mari Petroleum could see their earnings negatively affected by this development.

For Oil & Gas Marketing companies and refineries, a sudden drop in crude prices can lead to inventory losses. These companies typically hold significant stocks of crude oil or refined products, which were purchased at higher prices. When market prices fall, the value of this inventory declines, impacting their profitability in the short term. This could be a headwind for companies such as Pakistan State Oil, Attock Petroleum, Shell Pakistan, National Refinery, Attock Refinery, and Pakistan Refinery.

On the positive side, the chemicals sector, particularly those involved in producing PTA (purified terephthalic acid) and PVC (polyvinyl chloride), could see a benefit. Crude oil derivatives like paraxylene (PX) for PTA and ethylene for PVC are key feedstocks. Lower crude prices generally translate to lower feedstock costs, which can improve their profit margins. This is a positive development for companies like Lotte Chemical Pakistan and Engro Polymer & Chemicals.

Power generation companies, especially those that use furnace oil or re-gasified liquefied natural gas (RLNG) as fuel, may also see some relief. Lower crude prices can lead to reduced costs for these fuels, which are significant components of their variable operating expenses. While other factors like circular debt remain prominent, lower fuel costs are a positive for companies such as Hub Power, K-Electric, Nishat Power, and Kot Addu Power.

What to watch

Investors should closely monitor the sustainability of the US-Iran agreement and its long-term impact on global crude oil prices. Any reversal in the agreement or renewed tensions in the Middle East could quickly push prices back up. Domestically, it will be important to observe how quickly lower international crude prices translate into reduced fuel costs for power producers and lower feedstock prices for chemical companies. For OMCs and refineries, the focus will be on their inventory management and how future pricing mechanisms adapt to the new crude price environment.