RIL margins at a 20-year high as Asian benchmark GRMs hit a record

Asian benchmark Singapore gross refining margin (GRM) on Monday touched new life highs of $25.2 per barrel mark as demand for refined products rises globally coupled with the tightness in supply on the back of the Russia-Ukraine war and expectation of rising demand from China as it lifts the pandemic-induced lockdown.

GRM is what a company makes from turning every barrel of crude to fuel. On Monday, crude was trading at $120 a barrel after Saudi Arabia raised crude prices for July.

GRMs for Reliance Industries Ltd (RIL) also touched a 20-year high of $17 per barrel, said Morgan Stanley in a report, adding that RIL's energy vertical is on track to deliver its best quarterly performance in over 20 years and petrochemicals margin is up on a quarter-on-quarter (QoQ) basis despite lockdowns in China. RIL runs the most complex twin refineries in Jamnagar, Gujarat, and can process about 1.4 million barrels of crude daily.


"Globally, we expect a shortage of one refinery annually for the next few years. If we were to include arbitrage crude advantages, which RIL highlighted earlier, margins would be even higher, and 50% above their last peak seen in mid-2008," said Morgan Stanley Research in a June 6 report.

According to analysts, the global oil and finished products that were already stretched due to the pandemic and later the Russian invasion of Ukraine, could see further tightening once Chinese demand normalises as China unlocks from the pandemic induced lockdown.

Discounted crude oil imports from Russia are also aiding margins, said analysts.

"Oil imports from Russia might have risen to over 15% of India's total imports versus 1-2% historically," said Citi Research in a report, adding that assuming a $15 per barrel discount on 20% of the crude mix there could be a potential boost to RIL's GRM by almost $3 per barrel.

"RIL remains the clearest beneficiary of the ongoing tightness in refining given its superior complexity, high product export ratio, and relatively minor domestic retail operations, with potential added benefits from sourcing discounted crudes, which should keep near-term earnings momentum strong," said Citi Research. RIL's scrip ended at ₹2766.90, down 0.45% on the BSE.