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Singapore GRM down 12%, but OMCs’ GRM up in last 3 weeks
Key recent developments / data points in the oil & gas sector are:
* Singapore GRM at US$6.83/bbl in Q2FY20-TD is up 12% YoY and 97% QoQ; OMCs’ Q2FY20-TD GRM is estimated at US$6.5-7.3/bbl.
* Net auto fuel marketing margin is super-normal at Rs2.18/l in Q2FY20-TD and at Rs1.87/l in FY20-TD; OMCs’ integrated margin is US$9-9.8/bbl in Q2FY20-TD.
* US oil output was down 26k b/d MoM, but up 1.6mb/d YoY to 12.1mb/d; oil and NGL output was up 25k b/d MoM and 2.2m b/d YoY to 16.9m b/d in May’19.
* LPG and kerosene per unit subsidy in Aug’19 is down 59%-74% YoY. We estimate a shortfall in FY20 budget subsidy provision at Rs76bn-91bn.
Q2FY20-TD Singapore GRM up 1.5% over the last three weeks; OMCs’ GRM up 21-23% due to rise in diesel cracks and RTP being higher than international price:
Reuters’ Singapore GRM at US$6.83/bbl in Q2FY20-TD is up 97% QoQ, 12% YoY and at a 6-quarter high. Permanent closure of 335k b/d Philadelphia refinery during peak petrol demand US driving season and plunge in Singapore fuel oil inventory have boosted petrol, fuel oil cracks and GRM in the last few weeks. Singapore GRM has declined by 12% from 47-week high of US$7.47/bbl in the week ended (W.E.) 12-Jul’19 to US$6.55/bbl last week. While petrol, naphtha and fuel oil cracks are down, diesel, jet fuel and LPG cracks are up. Q2FY20-TD Singapore GRM is up 1.5% from US$6.73/bbl as of W.E. 12-Jul’19 to US$6.83/bbl as of W.E. 2-Aug’19. Q2FY20-TD GRM of OMCs has during the same period surged by 21%- 23% to US$6.5-7.3/bbl from US$5.3-6.0/bbl. The stronger rise in OMCs’ GRM than in Reuters’ Singapore GRM is due to:
1) diesel, jet fuel and LPG cracks, which are up in the last three weeks, being 54%-63% of OMCs’ product slate vs just 32% of Reuters’ product slate
2) refinery transfer price (RTP) of petrol and diesel in 16-31 Jul’19 being US$$2.1-4.5/bbl (3%-6%) and that in 1-2 Aug’19 being US$5.6-6.1bbl (8%) higher than international prices. RTP is higher than international price in falling price environment due to 15-day lag in RTP vs international price.
Q2-TD diesel cracks at 3-quarter high but forward curve does not show rise; FO cracks forward curve reflects fall as expected due to IMO:
Diesel cracks have recovered to a 3-quarter high of US$14.9/bbl in Q2FY20-TD and was at US$15.3/bbl last week. However, the forward curve for diesel does not as yet reflect the gains expected due to IMO, which IEA estimates would boost diesel demand by 0.83-0.9m b/d in Q4CY19 and CY20. Fuel oil cracks are currently strong, but forward curve does reflect the steep fall expected due to IMO. US refiner Valero, in its Q2CY19 earnings call, said “a fairly significant step change in diesel demand” is expected due to change in IMO marine fuel specs though it is not yet reflected in the forward curve.
Integrated refining and marketing margin up QoQ and YoY in Q2FY20-TD given super-normal auto fuel margin and GRM strength:
Net auto fuel marketing margin is super-normal at Rs2.18/l in Q2FY20-TD. OMCs’ Q2FY20-TD GRM is estimated at US$6.5-7.3/bbl. OMCs’ integrated refining and marketing margin at US$9.5-10.4/bbl is estimated to be up 21%-70% YoY and 56%-68% QoQ.
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