Costlier oil to shrink Reliance Industries’ refining margins

MUMBAI: Reliance Industries Ltd (RIL), which operates the world’s single largest oil refinery, likely earned less out of each barrel of crude oil it processed in the September quarter due to costlier oil and a weak rupee, said analysts.

RIL has traditionally enjoyed higher gross refining margins or Grm—what a refiner earns by turning crude oil into final products—than the benchmark Singapore GRMS thanks to its technical prowess.

“We expect Reliance’s refining margin premium to soften with realized margins 50¢ lower at $10.0/bbl,” Jefferies India Pvt. Ltd said in a 7 October note.

RIL’S GRM, which was $12 per barrel in September quarter of 2017-18, fell to $10.5 in the first quarter of this fiscal. In the September quarter, the benchmark Singapore Complex GRM rose from $6.0 to $6.2, led mainly by higher fuel oil cracks. RIL however does not produce fuel oil. RIL is currently in the silent period ahead of announcing its September quarter results on 17 October, when it is also expected to disclose the September quarter GRM. RIL’S Jamnagar refinery which can process 1.24 mil- lion barrels of oil per day has for years enjoyed over $4-5 premium to benchmark Singapore refining margins. This was helped by RIL’S superior technology that can process heavier and cheaper varieties of crude oil to yield the same quality of products that other refiners can make only with light and more expensive crude.

Most of the products at Jamnagar are exported, except for some such as cooking gas.

“Over the past few quarters, refining GRMS have relatively moderated from $12/bbl in Q1/ Q2FY18 to $10.5/bb in 1QFY19. Also, with higher oil prices, the fuel and losses and operating costs have likely increased, impacting realised earnings. However, there will be a partialoffset from the weak rupee,” Nomura Research said in a 27 September note.

In the September quarter, the rupee fell 5.55% while crude oil prices rose 1.58%. On Thursday, rupee ended at 74.13 to a dollar, up 0.12%. Crude oil fell 1.53% and was trading at 81.80 per barrel.

However, with the International Maritime Organization regulations taking effect by 2020 and RIL’S own expansion of its core projects, its GRMS are expected to rise.