Oil and Gas Sector Update : Crude Compass: Supply Disruptions Shift Downstream Choice Institutional Equities
Developments over the past week
* Saudi Arabia is shifting loadings back toward Persian Gulf terminals amid Houthi threats to Red Sea exports. According to Bloomberg, Saudi Arabia’s overall oil exports averaged 3.2mbd during the first 23 days of August, below the previous wartime low of 3.65mbd in May and pre-war levels. Meanwhile, exports via Egypt’s Sidi Kerir surged to 2.1mbd in August from an average of 0.7mbd during Jan to June 2026, highlighting continued logistical rerouting.
* Russia’s fourth-largest refinery and second-largest gasoline producer, NORSI, suspended crude processing following a Ukrainian drone attack. Meanwhile, Russia is reportedly considering intensified missile strikes on Kyiv and Ukrainian infrastructure as peace negotiations stall.
* The US Treasury address reinforced Washington’s push to restrict Iran’s access to global financial and trade channels. Treasury Secretary Scott Bessent detailed “Operation Economic Outcast,” extending scrutiny across digital assets, technology, precious metals, aviation and maritime activities. Despite heightened sanctions pressure, the Treasury stopped short of sanctioning Chinese banks or refineries, contrary to market expectations. China’s purchases of Iranian crude declined to 534kbd in August from 823kbd in July. Meanwhile, of the 83mn barrels of Iranian crude located outside the Gulf of Oman, ~40mn barrels are anchored near Singapore, with just ~4mn barrels yet to find buyers, pointing to strong absorption of available Iranian cargoes. China remains the key swing factor, accounting for ~90% of Iranian oil purchases.
In our opinion:
* Saudi Arabia’s rerouting through the Persian Gulf and Sidi Kerir demonstrates that producers are finding workarounds, limiting the risk of an outright supply shock. However, lower Saudi exports alongside continued Houthi threats and Iran-related uncertainty, suggest that redundancy in regional export infrastructure is being stretched. We believe this keeps a structural geopolitical and freight premium embedded in crude, even without a further escalation in physical disruptions.
* The shutdown of Russia’s NORSI refinery, alongside continued Ukrainian attacks on Russian downstream infrastructure, adds another layer of risk to an already constrained refined-product market. In our view, the greater near-term upside risk therefore lies in product cracks - particularly diesel - rather than crude itself, reinforcing our preference for refining exposure over upstream or OMCs.
* 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, implying current upside of 23.8% and 12.0% respectively.
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