Q1FY13 Result Preview
Oil & Gas
Crude gives, rupee takes
Amidst the EU turmoil, crude prices crashed from a high of US$125/bbl to about US$90/bbl and averaged US$109/bbl during Q1. Falling crude prices was good news from the Indian perspective but 7.5% QoQ rupee depreciation negated the positive impact of lower crude prices. GRMs did not receive any fillip from falling crude prices and declined further from US$7.7/bbl in Q4 to US$6.7/bbl in Q1. Despite lower crude prices, Q1 under-recoveries still remained high at Rs445bn owing to rupee depreciation. Government raised petrol prices during Q1 but the decision on diesel (possibly LPG) price hike is pending and is expected only post presidential elections. Devoid of government support in Q1, OMCs will report losses, but upstream will report relatively better performance. Gas utilities are likely to be a mixed bag. Cairn is likely to benefit from rupee and forex gains while RIL’s petchem and refining performance will be better on a QoQ basis.
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m Crude declines and averages at US$109/bbl: EU turmoil along with weaker gasoline demand in the US and rising crude stockpiles led to a free fall in crude prices from a high of about US$125/bbl to US$90/bbl during Q1. Crude thus averaged US$109/bbl while currently hovering around US$100/bbl.
m Lower gasoline and naphtha cracks impact GRMs: Lower gasoline demand in the US led to gasoline cracks falling to single digit from mid-teens. Simultaneously, lower petchem demand from China and higher availability from the Middle-East sent naphtha prices plummeting. Hence, despite widening light-heavy and sweet-sour differentials, GRMs declined sequentially. Reuters Singapore Complex GRMs thus averaged lower QoQ at US$6.7/bbl in Q1 compared to US$7.7/bbl in Q4FY12.
m Under-recoveries still remain high at Rs445bn: Rupee played a spoil sport amidst lower crude prices thus keeping under-recoveries high at Rs445bn.
m OMCs in red, upstream to fare better: Devoid of government compensation, OMCs are likely to report losses. ONGC and OIL are expected to report better numbers due to higher net realisation and favourable exchange rate but the statutory duties are likely to rise owing to higher cess (from Rs2,500/ton to Rs4,500/ton). Decline in gas demand is likely to affect Petronet, GAIL and Gujarat Gas while lower domestic availability is likely to affect GSPL. Though IGL is likely to report volume growth, it would be under pressure due to rupee depreciation. Cairn is likely to benefit from favourable exchange rate both from crude realisations and from forex gains. RIL’s refining and petchem segments are expected to benefit from rupee depreciation while E&P still remains a dampener. We remain positive on Cairn owing to high crude prices and the likely ramp-up in crude production and on Petronet LNG due to favourable domestic demand amidst lowering spot LNG prices and increasing availability.
m Lower gasoline and naphtha cracks impact GRMs: Lower gasoline demand in the US led to gasoline cracks falling to single digit from mid-teens. Simultaneously, lower petchem demand from China and higher availability from the Middle-East sent naphtha prices plummeting. Hence, despite widening light-heavy and sweet-sour differentials, GRMs declined sequentially. Reuters Singapore Complex GRMs thus averaged lower QoQ at US$6.7/bbl in Q1 compared to US$7.7/bbl in Q4FY12.
m Under-recoveries still remain high at Rs445bn: Rupee played a spoil sport amidst lower crude prices thus keeping under-recoveries high at Rs445bn.
m OMCs in red, upstream to fare better: Devoid of government compensation, OMCs are likely to report losses. ONGC and OIL are expected to report better numbers due to higher net realisation and favourable exchange rate but the statutory duties are likely to rise owing to higher cess (from Rs2,500/ton to Rs4,500/ton). Decline in gas demand is likely to affect Petronet, GAIL and Gujarat Gas while lower domestic availability is likely to affect GSPL. Though IGL is likely to report volume growth, it would be under pressure due to rupee depreciation. Cairn is likely to benefit from favourable exchange rate both from crude realisations and from forex gains. RIL’s refining and petchem segments are expected to benefit from rupee depreciation while E&P still remains a dampener. We remain positive on Cairn owing to high crude prices and the likely ramp-up in crude production and on Petronet LNG due to favourable domestic demand amidst lowering spot LNG prices and increasing availability.
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