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Developments over the past week:

? Oil prices extended gains as renewed US-Iran hostilities and threats of further escalation heightened concerns over Strait of Hormuz disruptions. Brent crossed USD 101/b, supported by stronger Chinese buying that further tightened global oil markets. However, elevated crude prices could pressure independent refinery runs and demand.

? Global diesel markets remain structurally tight as Middle East supply disruptions and Ukrainian strikes constrain Russian refinery exports. Refiners elsewhere are operating near capacity, while inventories continue to decline. This supply tightness is adding to inflationary pressures and increasing winter supply risks, particularly in Europe.

? US diesel inventories are projected to fall below 100 Mn barrels, their lowest level since 2003, amid supply disruptions stemming from the Middle East and Russia-Ukraine conflicts. Reflecting this tightening, the EIA raised its Q4CY26 retail diesel price forecast by 14% to USD 5.55/gallon, further adding to inflationary pressures.

In our opinion:

? Renewed US-Iran escalation and continued disruption through the Strait of Hormuz should keep a geopolitical premium embedded in crude, with Brent likely to remain elevated unless there is a credible path towards de-escalation.

? Unlike crude, diesel faces a deeper structural supply constraint as Middle Eastern and Russian flows remain disrupted while global refiners operate near capacity. As highlighted in our Q1FY27 Quarterly Results Review, we expect tight inventories and winter demand to sustain elevated diesel cracks.

? While higher crude prices remain a headwind for OMCs, CPCL and MRPL continue to benefit from strengthening diesel cracks, with diesel prices rising faster than crude, as detailed in our Refinery Thematic report. The upcoming September–November refinery maintenance cycle should further tighten product availability and provide additional support to refining margins. We have TP of INR 215/sh and INR 1,540/sh for MRPL and CPCL respectively.

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