India's oil and gas explorers and refiners to petrochemical companies could face pressure on their profitability as crude prices remain volatile and the benchmark refining margin has plunged.
The Singapore gross refining margin—what refiners make on processing every barrel of crude into diesel, petrol and other products—has fallen 50% so far in the ongoing quarter to $4.8 a barrel as of Oct. 15, according to Reuters data. It dropped 6% week-on-week.
By comparison, Singapore GRM had surged 2.37 times from $4.1 per barrel in Q1 to $9.6 a barrel in Q2.
Spreads Fall For Most Crude Products
According to the data, GRMs have contracted because of a decline in spreads—gap between the price of crude and the final product—for all categories except liquefied natural gas.
LPG cracks have risen 12.09%, while fuel oil and petrol have seen the highest decline of 90% and 50%, respectively, over the previous quarter ended June.
Impact On Companies
Oil Refineries
Profitability of state-owned refiners like Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., as well as private refineries like Reliance Industries Ltd., is likely to be affected by a fall in GRMs. And while many of the PSUs follow government-regulated pricing, that may not completely offset narrower refining margins.
Petrochemical Companies
Supreme Petrochem Ltd. and Manali Petrochemical Ltd. may sees costs fluctuate. While lower feedstock prices due to volatile crude oil can benefit their operations, falling GRMs may affect their cost structure.
The impact is likely to be mixed on integrated companies with both refining and petrochemical operations, like Reliance Industries. Falling GRMs can reduce refining profitability, but lower feedstock costs can help their petrochemical units.
Oil & Gas Explorers
For exploration companies such as Oil and Natural Gas Corp., Oil India Ltd., and Hindustan Oil Exploration Co., falling crude prices affect their revenues, but they may benefit from lower operating costs.
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