Indian oil refiners and petrochemical companies may come under pressure as the Singapore gross refining margins, a benchmark for the industry, dropped to $4.5 per barrel on Thursday, according to data.
The margin plunged 35% year-on-year and 54% month-on-month. It is the lowest level since Nov. 27.
What's Driving Lower Margin?
"The refining margins in the Asian region have slipped to an eight-month low due to China," Deepak Jasani, head of retail research at HDFC Securities Ltd., told NDTV Profit.
Despite China giving a 5% gross-domestic-product projection, the lack of major stimulus has disappointed investors. Factors like a fall in China's internal-combustion-car sales, sluggish industry performance and property downturn weigh on the global petro-product demand, which has led to the GRMs shrinking, according to Jasani.
Impact On Indian Oil Marketing Companies
The Singapore GRMs indicate the profit earned by oil refiners for each barrel of crude oil they process. Essentially, it reflects the difference between the price of crude oil and the aggregate selling prices of the refined products derived from it, such as petrol, diesel and liquefied petroleum gas.
A drop in the Singapore GRMs stands to have a negative impact on the Indian oil marketing companies like Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp.
Lower GRMs globally imply shrinking difference between oil prices and prices of refined products. With the Brent crude oil prices up almost 5% in the past month and retail fuel prices of petrol and diesel prices being locked in at the same price since May 2022, the Indian OMCs could see an impact on the refining margins and profitability from the refining segment.
The OMCs can gain some relief from the marketing segment, Jasani said. "As long as petrol and diesel prices are not revised downwards, healthy marketing margins will offset the softer gross refining margins."
Pure Refining Companies
Pure refining oil companies like Chennai Petroleum Corp. and Mangalore Refinery and Petrochemicals Ltd. can see some pressure. However, factors like inventory losses play a huge role when it comes to profitability.
Therefore, the impact of the lower Singapore GRMs on the overall profitability will only depend on the Brent crude prices at the end of the quarter, Jasani said. "However, based on current data available, some fall on profitability could be expected."
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