Published on 25/03/2020 6:07:30 PM | Source: ICICI Securities Ltd

Oil and Gas Sector Update -Marketing margins likely at record high on 1-Apr`20; OMCs` GRM reasonable despite negative petrol cracks - ICICI Sec

Posted in Broking Firm Views - Sector Report| #Oil and Gas Sector #Sector Report #ICICI Securities

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Key recent developments / data points in the oil & gas sector:

* Net auto fuel marketing margin is super-normal at Rs3.01/l in Q4FY20-TD, Rs4.96/l on 24-Mar’20 and Rs2.17/l in FY20-TD.

* Q4FY20-TD Singapore GRM at US$1.41/bbl is down 56% YoY and 16% QoQ.

* IHS Markit estimates global oil demand fall up to 10m b/d in Mar-Apr’20, supply surplus of 4-10m b/d in Feb-May’20 & 0.8-1.3bn boe inventory rise in H1CY20.

* Marketing margins may begin FY21 at unprecedented highs:

Net auto fuel marketing margin is at Rs4.96/l on 24-Mar’20. Refinery transfer price (RTP) of diesel and petrol may decline by Rs6.1-9.6/l on 1-Apr’20, which may boost net margin to Rs10.11-12.11/l on 1-Apr’20 depending on whether there is no retail price cut or daily cut of Rs0.27-0.31/l (as on 14-Mar’20) or Rs0.15-0.16/l (as on 16-Mar’20). There has been no retail price cut for the last eight days since 16-Mar’20. OMCs’ Q4-TD integrated refining & marketing margins are estimated at US$4.5-8.0/bbl.

* Singapore GRM in the red since 16-Mar’20 hit by negative and weak petrol and aviation fuel cracks, but OMCs’ GRM at US$5.4-5.8/bbl: Reuters’ Singapore GRM is in the red since 16-Mar’20 at minus US$1.7/bbl hit by petrol cracks in the red at minus US$0.4/bbl, jet fuel cracks at US$3.9/bbl and jump in crude freight to US$3.9/bbl. Petrol cracks appear to have been hit by plunge in demand in world’s largest market US due to the coronavirus pandemic induced lockdown. Jet fuel cracks are hit by plunge in global air travel. Freight cost is up to US$3.9/bbl in 16-23 Mar’20 due to increased Saudi chartering of VLCCs ahead of its plan to boost output by 2.6m b/d in Apr’20. However, we estimate OMCs’ GRM in 16-23 Mar’20 at spot prices at US$5.4-5.8/bbl, despite negative and weak petrol and jet fuel cracks, boosted by strong LPG, fuel oil, petcoke and propylene cracks. Diesel cracks are at US$10.1/bbl. OMCs’ GRMs in Q4FY20-TD are estimated at US$0.5-3.8/bbl with gains from refinery transfer price (RTP) being higher than spot price of US$5.5-6/bbl being more than nullified by crude inventory loss of US$6.4-9.2/bbl.


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