Despite the recent correction, crude oil prices are still nearly 41% above pre-war levels.
As a result, petrol and diesel prices rose sharply in India, which helped local refiners post a significant rise in their gross refining margins.
This is evidenced by Singapore’s GRM benchmark, which is a measure of regional refining margins.
Talking to business standardNitin Tiwari, executive vice president of YES Securities, says the GRMs in Singapore are currently over $20 a barrel. Annual levels were $6-7 per barrel on average. He says, the rise of the Singapore index in favor of refiners and OMCs.
Experts predict that these margins could remain at the higher end as the global supply deficit for refined products remains unmet.
Nitin Tiwari of YES Securities says the situation is favorable for refiners as the refining margin environment remains strong.
He says India gets the reduced crude from Russia and independent wound reprocessing mechanisms and refineries are also helping to report reasonable wound reprocessing mechanisms.
Of the lot, analysts are particularly bullish on Reliance Industries.
According to Jefferies, “RIL is the primary beneficiary of energy inflation, with every $1 per barrel improvement in annual refining margins adding an estimated $400-450 million to our consolidated EBITDA.”
On the other hand, the road ahead for integrated refineries is still bumpy…
While shares of independent refiners like MRPL and CPCL are up as much as 3 times so far this year, investors exited from CICI Securities, for example, believe gains in refining margins are unlikely to offset losses on the retail front.
“Estimated losses in petrol and diesel increased to Rs 10.5 and Rs 12.5 per liter in the first quarter of FY23. We estimate that every $1 per barrel additional payment from the GMRM offsets only Rs 3-4 per liter of retail fuel loss,” According to ICICI Securities.
However, markets will seek guidance from today’s global peers. Later in the week, investors will be watching core sector output, manufacturing PMI, and auto sales data.
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