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Nirmal Bang Report
We see the recent 10% fall in crude oil price amid the increase in OPEC plus supplies by 1.9 million barrel per day - on tapering output cut from 9.6 mnbpd to 7.7mnbpd - as a near term tailwind for Indian oil marketing companies (OMCs) as it is likely to boost their retail margins.
The uncertain outlook for oil demand growth is likely to persist as we see a second wave of Covid-19 across the U.S., Europe and emerging economies, with China alone showing a revival.
This is likely to sustain the pressure on gross refining margins (GRMs) for some time, but the prospects for inventory gains (specific to each refiner) could offer some respite to OMCs in refining earnings.
Further, with retail margins likely to remain healthy under subdued oil prices (40-45/ barrel of oil U.S. dollar), the risk-reward in OMCs is set to improve.
We also see positive trends in gas demand from bulk segments, including power, which is leading the pack.
Key risk: OPEC+ announcing fresh cuts in production, implying a near term rally in oil prices.
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