Refining Margins Skyrocket 2,000%: Which Indian Oil Stocks Can Cash In?

Synopsis:
Singapore’s refining margins surged 2,000 percent in ten days, signaling stronger profitability ahead for Indian refiners amid tightening global supplies.

The refining sector has witnessed a dramatic week as Singapore’s gross refining margins (GRMs) surged by 2,000 percent within just ten days. Margins climbed sharply from $0.41 to $8.6 per barrel, indicating a potential uplift in earnings for Indian refiners amid improved product spreads and stronger refining profitability.

What is Gross Refining Margin?

The gross refining margin, or GRM, refers to the difference between the value of refined petroleum products produced and the cost of crude oil used as input. It essentially captures the earnings that a refinery generates for every barrel of crude processed into finished fuels such as petrol, diesel, LPG, and furnace oil. Since each product has a different market value, GRMs serve as a key indicator of refining efficiency and profitability, typically expressed on a per-barrel basis.

What are the Reasons for the Surge in Singapore’s Gross Refining Margins?

Singapore’s GRM has climbed to $8.61 per barrel, almost twice the second-quarter average of $4.10, reflecting a sharp tightening in global product supply. The spike has been driven by multiple factors, including sanctions on Russia that have restricted the flow of refined products, and Ukrainian strikes that have disrupted Russian export infrastructure. In addition, planned maintenance shutdowns at refineries around the world have further constrained supply, lifting overall product cracks and pushing margins sharply higher.

How Does It Benefit Indian Refiners?

Higher Singapore GRMs are positive for Indian refiners because they directly influence the profitability of converting crude oil into finished products. Since Singapore’s GRM serves as the global pricing benchmark, any rise in margin levels typically boosts the earnings potential of companies such as Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Reliance Industries (RIL), Mangalore Refinery and Petrochemicals (MRPL), and Chennai Petroleum Corporation.

Industry estimates suggest that every $1-per-barrel increase in GRMs enhances Chennai Petroleum’s earnings by roughly 26 percent and MRPL’s by 24 percent. For larger, diversified refiners, the benefit is relatively smaller, with IOCL expected to gain around 11 percent, BPCL about 10 percent, HPCL 8 percent, and RIL 2 percent, given their integrated business models and broader energy portfolios.

How Has the Market Reacted to This?

The sharp rise in refining margins has been mirrored in market sentiment. The Nifty Oil & Gas index advanced 249.35 points or 2.12 percent to close at 11,995.95.

Among key constituents, Indian Oil Corporation jumped 5.54 percent, Bharat Petroleum gained 2.25 percent, Hindustan Petroleum rose 3.53 percent, Reliance Industries moved up 1.14 percent, and Mangalore Refinery and Petrochemicals added 4.25 percent. However, Chennai Petroleum Corporation slipped 3.92 percent, as investors booked profits following recent strong gains.

Conclusion

With global supply disruptions likely to persist in the near term and refinery turnarounds continuing, Indian refiners could see stronger profit realization in upcoming quarters. Sustained GRMs at these elevated levels would significantly improve earnings, especially if crude oil prices remain stable.

Written by Manan Gangwar

Disclaimer

The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post Refining Margins Skyrocket 2,000%: Which Indian Oil Stocks Can Cash In? appeared first on Trade Brains.