Return to near-normalcy…
Crude oil prices in uptrend; stability crucial
Global crude oil prices were on an upward trend from November onwards in Q3FY21. Brent crude oil prices, on a closing basis, jumped US$10.2/bbl QoQ to US$51.2/bbl on account of a recovery in demand compared to earlier phase of Covid-19 pandemic and Opec+ decision to maintain oil output at lower levels. Average crude oil prices also increased by US$1.8/bbl to US$44.6/bbl. Hence, net realisations of upstream companies are expected to increase marginally QoQ.
Singapore GRMs see marginal recovery
Benchmark Singapore GRMs, while recovering from Q2 levels of US$0.1/bbl, still remained low at US$1.2/bbl in Q3FY21. Singapore GRMs are less relevant now as low grade fuel oil is a significant component of benchmark. For Indian refiners, spreads of gas oil, gasoline and jet fuel are more important. While gas oil spreads further declined to multi-quarter lows, gasoline spreads also fell in Q3 after witnessing some recovery in Q2. The spread for gas oil fell by US$0.6/bbl from US$4.2/bbl to US$3.6/bbl and Gasoline product spreads declined by US$0.4/bbl to US$4/bbl. Jet fuel spreads saw recovery of US$3.1/bbl to US$2.7/bbl due to a sequential increase in demand. Due to increase in capacity utilisation, operational efficiency is expected to improve, leading to better core GRMs QoQ. However, core GRMs for refiners are expected to remain subdued during Q3FY21 compared to historical average. Fuel demand surpassed pre-Covid level in October ahead of festive season while demand in November and December was lower YoY. We expect marketing volumes to fall 1.5% YoY and marketing margins to remain steady QoQ. This is expected to lead to stable profitability for OMCs in the quarter.
Industrial PNG supports CGD growth; margins improve
YoY Sales volume of city gas distribution (CGD) companies with higher CNG contribution are expected to fall in the range of 4-5% YoY as demand was not fully restored. Industrial PNG segment, however, witnessed faster recovery and are expected to report YoY growth. Domestic PNG sales volume are expected to remain steady. On the margin front, we expect an improvement YoY as CGD companies have not fully passed on lower gas cost to customers. On a QoQ basis, margins are expected to decline, to some extent, on account of an increase in spot gas prices during the quarter. For large gas transmission companies, volumes are expected to be flattish YoY supported by increased demand from fertiliser sector and industrial segment. The LNG segment continued to increase its share in India’s gas consumption basket.
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