Singapore Gross Refining Margins Surge 2,000% In 10 Days—What Does It Mean For Indian Refiners?

It has been a frantic week for Singapore's gross refining margins, which have jumped 2,000%, climbing from $0.41 to $8.6 in a matter of just 10 days, which could serve as a major earnings boost for major Indian refiners.

The current GRM of $8.61 is almost double that of the second-quarter average of $4.10 per barrel, with the sharp increase being accentuated by many factors, including global supply constraints.

Other potential factors for the rising margins include sanctions on Russia that are impacting the availability of final products and Ukrainian strikes that have hit Russian product exports.

In addition, there are several planned capacity shutdowns globally that are contributing to an overall short supply, thus aiding product cracks.

The rise in Singapore's GRM bodes well for Indian refiners, as GRM is essentially the margin a refiner makes by turning crude oil into refined products.

Singapore GRMs are the benchmark for global pricing. In this case, the higher GRMs are expected to benefit Indian refiners such as Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Reliance Industries (RIL), Mangalore Refinery and Petrochemicals (MRPL), and Chennai Petroleum.

Every $1 per barrel rise in GRMs benefits Chennai Petroleum by 26% and MRPL by 24%.

The impact on larger integrated companies is more moderate, with IOCL benefiting by 11%, BPCL by 10%, HPCL by 8%, and RIL by 2%.

Given the tailwinds, it is no surprise that the Nifty Oil & Gas index has emerged as one of the highest gaining sector in trade on Monday.

BPCL leads the rally with a gain of 2.77%, followed closely by HPCL, which has gained 2.66%.

Shares of Reliance Industries has also gained almost 2% while IOC has surged 0.95%.