Oil Refining & Marketing RIL’s 3Q GRM may be lower than Reuters’ Singapore GRM 􀂄 BofA Merrill Lynch,

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Oil Refining & Marketing
RIL’s 3Q GRM may be lower
than Reuters’ Singapore GRM
􀂄 Sing GRM TD in 3Q US$9.8/bbl; RIL GRM US$7.5-8.9/bbl
Reuters’ Singapore complex refining margin (GRM) to date in 3Q FY12 at
US$9.8/bbl is at the highest level since at least 1998. Singapore GRM to date in
FY12 at US$9.0/bbl is also higher than US$7.6/bbl at the peak of the last supercycle
in FY08. Theoretical GRM of Reliance Industries (RIL) for 3Q works out to
US$7.5-8.9/bbl. RIL’s 3Q GRM is likely to be lower than Singapore GRM and also
QoQ and YoY lower. However, a weaker rupee, strong petrochemical margins
and higher other income may help RIL make up for GRM weakness. Retain Buy.
3Q Singapore GRM highest at least since 1998; up 8% QoQ
Singapore GRM in 3Q is 8% QoQ and 79% YoY higher. The QoQ rise is driven by
QoQ rise in diesel (US$0.8/bbl), jet fuel (US$1.0/bbl) and fuel oil (US$3.4/bbl)
cracks. These products are 58% of Reuters’ product slate. However, cracks of
light distillates (42% of Reuters’ product slate) petrol (US$0.5/bbl), naphtha
(US$5.4/bbl) and LPG (US$2.1/bbl) are QoQ lower. Naphtha and petrol cracks
have slumped since the start of 3Q and are US$5.6-9.0/bbl below 3Q average.
RIL’s 3Q theoretical GRM US$7.5-8.9/bbl down 12-26% QoQ
RIL’s 3Q theoretical GRM at US$7.5-8.9/bbl is US$1.1-2.5/bbl below Singapore
GRM. It is also QoQ and YoY lower. The QoQ decline is mainly due to decline in
propylene, naphtha and LPG cracks and in discount of heavier crude RIL can use
to Dubai crude. Singapore GRM TD in FY12 is higher than the peak in FY08 but
RIL’s 1H FY12 GRM at US$10.2/bbl is well below its FY08 peak of US$15/bbl.
RIL is hit by FY12 light-heavy crude spread, naphtha and LPG crack (US$9-
18/bbl) being lower than in FY08.
R&M companies hit by high Bonny light-Dubai premium
HPCL and BPCL’s GRM in 1H FY12 is 28-53% YoY lower at US$1.5-2.3/bbl even
as Singapore GRM is up 124% YoY. They have been hit by jump in premium of
Bonny light and similar domestic crude (50-55% of crude mix) to Dubai to US$9-
10/bbl in 1H FY12 from US$3-4/bbl in 1H FY11. BPCL and HPCL’s theoretical
GRM for 3Q works out to US$2.1-2.6/bbl.
Diesel cracks strong but petrol weakening; closures to help
Singapore GRM would fall in 2012 if weak global oil demand coincides with large
capacity add. However, demand holding up and larger capacity closures than
expected could salvage GRM. Diesel and jet fuel cracks TD in FY12 are US$19-
20/bbl (current US$20-21/bbl) but petrol (US$8/bbl) and naphtha cracks (minus
US$14) have fallen. If demand holds up middle distillate utilization would remain
high at 98% in 2012-13 while petrol would be just 82%. Closure of petrol biased
refineries would tighten diesel balance and boost diesel cracks.