Plunge in petrol and fuel oil cracks hit GRM; diesel cracks strong
Key recent developments / data points in the oil & gas sector:
* In Q3FY20-TD, Singapore GRM at US$4.21/bbl is down 2% YoY and 35% QoQ on plunge in the last three weeks, while OMC GRMs are estimated at US$9.3- 10.4/bbl.
* Net auto fuel marketing margin is Rs0.79/l in Q3-TD, Rs1.05/l on 31-Oct’19 and Rs1.64/l in FY20-TD; OMCs’ Q3-TD integrated margin is US$10.2-11.4/bbl.
* CCEA approved new guidelines for marketing transportation fuels in India. Prior experience & investment requirements reduced to promote competition.
* Plunge in petrol cracks on rising US refinery utilisation and weak FO cracks hit GRM; diesel cracks at US$15.1/bbl WTD and US$16.3/bbl in QTD: Reuters’ Singapore GRM, which was at US$6.15/bbl in the first two weeks of Oct’19, has plunged to an average US$2.87/bbl in the rest of Oct’19. Singapore GRM has been hit by
1) fall in all product cracks except naphtha but hit most by fall in fuel oil and petrol (55% of Reuters’ product slate) cracks by US$3.1-4.0/bbl, and
2) rise in implied crude freight by US$0.7/bbl. Petrol cracks, which had surged from US$10.2/bbl to US$18.9/bbl on fall in US refinery utilisation from 95.1% in the week ended (W.E.) 6-Sep’19 to 83.1% in W.E. 11-Oct’19, are down to US$12.0/bbl last week on rebound in utilisation to 87.7% over the last two weeks; petrol cracks are at US$10.2/bbl in WTD suggesting further rise in US refinery utilisation. Petrol and diesel cracks in Q3FY20-TD at US$14.9-16.3/bbl are at 15-23 quarter highs. Fuel oil cracks are at a 22-quarter low of minus US$14/bbl in Q3FY20-TD hit probably by ships switching to IMO-compliant fuel from Oct’19. Crude freight from West Africa and Arabian Gulf to India, which had surged by 3.5-13.4x, is now down 65-80% from the recent peak, but is still up 23-170% above 25-Sep’19 levels
* Strong auto fuel cracks and RTP lag boost OMCs’ GRM; freight hit may be US$0.19-0.25/bbl:
We estimate Q3FY20-TD GRMs of IOC, HPCL and BPCL at US$9.33/bbl, US$9.48/bbl and US$10.42/bbl, respectively, with GRM
1) based on spot international prices being at US$6.41-7.14/bbl;
2) being boosted by US$2.9- 3.3/bbl due to refinery transfer price (RTP) of auto fuels based on 15-day moving average being higher than that based on international spot prices; and
3) being hit by US$0.19-0.25/bbl due to US$1.0/bbl QoQ rise in freight. We estimate that 19% of HPCL’s, 21% of BPCL’s and 26% of IOC’s crude throughput is hit by freight rise.
* Auto fuel marketing margin weak in Q3FY20-TD, but supernormal in FY20-TD:
Net auto fuel marketing margin is weak at Rs0.79/l in Q3FY20-TD (up to 31-Oct’19), but is supernormal at Rs1.64/l in FY20-TD. Weak net marketing margin is due to margin of just Rs0.3/l in 1-15 Oct’19, which has recovered to Rs1.24/l during 16-31 Oct’19. Auto fuel net marketing margin is Rs1.05/l on 31-Oct’19. Integrated refining and marketing margin of OMCs, which was at US$9.5-10.1/bbl in Q2FY20, is higher at US$10.2-11.4/bbl in Q3FY20-TD.
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