Refiners en route to seize most gains from war fallout

Despite the recent correction, crude oil prices still remain roughly 41% higher from pre-war levels.

As a result, prices of petrol and diesel have recorded a sharp climb in India, helping domestic refiners clock significant rise in their gross refining margins (GRM).

This is evident from the Singapore benchmark GRM, which is a gauge of regional refining margins.

Speaking to Business Standard, Nitin Tiwari, Executive Vice-President, YES Securities says Singapore GRMs currently over $20/bbl. Yypical levels have been $6-7/bbl on average. He says, rise in Singapore benchmark benefitting refiners and OMCs.

Experts predict these margins could remain on the higher-end as the global supply deficit for refined products remains unmet.

Nitin Tiwari of YES Securities says, situation is favourable for refiners as refining margin environment remains strong.

He says, India is sourcing discounted crude from Russia also aiding GRMs and standalone refiners to report reasonable GRMs.

From the lot, analysts are especially bullish on Reliance Industries.

According to Jefferies, “RIL is a key beneficiary of energy inflation, with every $1 per barrel improvement in annualized refining margins adding an estimated $400-450 million to its consolidated EBITDA.”

On the other hand, the road ahead for integrated refiners remains bumpy…

While shares of standalone refiners like MRPL and CPCL have soared up to 3 times so far this year, investors have exited CICI Securities, for instance, believes gains in refining margins are unlikely to make up for losses on the retail front.

“Estimated losses on petrol and diesel have risen to Rs 10.5 and Rs 12.5 per litre for Q1FY23. We estimate that every $1 per barrel incremental GRM boost only compensates for Rs 3-4 a litre of retail fuel loss”, accordoing to ICICI Securities.

That said, markets will seek direction from global peers today. Later in the week, investors will monitor the core sector output, manufacturing PMI, and auto sales data.

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