Multi-year-low inventories, gradual decline in Russian exports, restoration in European and Chinese demand, and decrease diesel manufacturing in Europe are, in our view, tailwinds to refining margins in CY22. US gasoline inventories have fallen sharply heading into the driving season, additional aiding margins. RIL is our most popular play on the near-term refining tailwinds, whereas the elevated advertising losses preserve us cautious on the OMCs.
Diesel inventories at multi-year lows: Diesel inventories throughout Europe, Singapore, and the US are at multi-year lows, making a provide crunch benefiting cracks. The complete throughput of 4 main European refiners was down 6% q-o-q and three% y-o-y within the Mar-22 quarter. Diesel demand stays sturdy in Europe whilst demand in China and India has been weak.
Diesel exports from China stay muted: Diesel exports from China at < 0.2mbpd are a fraction of the 0.7mbpd clocked throughout Mar-21 whereas diesel exports from India is range-bound too at ~ 0.6-0.7 mbpd. Shipping information suggests Russia’s refined merchandise exports have declined solely 0.2mbpd for the reason that battle. With current sanctions by EU, Russian oil exports may decline sharply in H2CY22.
Diesel cracks may stay elevated: Strong demand in Europe, gradual rest in restrictions in China, decrease refinery manufacturing in Europe, and decrease Russian exports are supportive of margins in CY22. However, larger diesel exports from China and better refinery throughput from European refiners, coupled with incremental provide from Jazan/Al Zour, may offset the shortfall in provide.
Gasoline cracks up sharply: After lagging diesel cracks initially, gasoline cracks have risen sharply. Benchmark Asian refining margins are as much as ~ $23/bbl (previous decade avg ~ $5.7/bbl), helped by energy in diesel and gasoline spreads.
RIL to learn from refining margin energy: RIL is a key beneficiary of vitality inflation, with each $1/bbl rise in refining margins annualised including $400-450 mn to its Consol Ebitda. O2C Ebitda is prone to see upgrades in FY23, as refining energy continues.
Near-term outlook weak for OMCs regardless of sturdy refining margins: OMCs are presently incurring losses of `13-16/l in auto gas advertising because of the freeze in worth hikes adopted by full pass-through of the current lower in excise obligation. Indeed, with refining volumes at 50%/73%/91% of selling volumes for HPCL/BPCL/IOCL, respectively, the near-term outlook on the earnings for OMCs appears mushy.
Source: www.financialexpress.com”
