We expect crude oil price to remain range-bound

Published: April 14, 2018 2:56:23 AM

The supply cut by OPEC and non-OPEC countries (excluding US), will provide strength to crude prices. However, strong shale oil supplies from US will provide a cap on crude prices.

Crude prices: Brent has jumped 9% QoQ and 23% YoY to $67.1/bbl in 4QFY18. We expect inventory gains of $0.5 to 1.2/bbls) to downstream companies. (Reuters)

Crude prices: Brent has jumped 9% QoQ and 23% YoY to $67.1/bbl in 4QFY18. We expect inventory gains of $0.5 to 1.2/bbls) to downstream companies. GRM: Singapore complex GRM was $7/bbl (-4.4% QoQ, +9.4% YoY) in 4QFY18. Strong margins in Gasoil at $14.7/bbl (+12% QoQ, +24% YoY) and Jet Kero at $15/bbl (+10% QoQ, +29% YoY) have partially negated the weakness in Gasoline margins which was down 3.6% QoQ and 10% YoY to $13.4/bbl and Fuel Oil margins which was down 29% QoQ and 51% YoY. Downstream: OMCs did not pass on the full impact of rising oil prices in 3QFY18 to auto fuel consumers (likely on account of state elections), compressing marketing margins. But they have hiked prices in 4Q to restore marketing margins. Blended marketing margins were up 6.3- 6.5% QoQ to Rs 3/litre. Strong marketing margins and inventory gains are likely to offset for lower refining margins during the quarter.

Upstream players: The supply cut by OPEC and non-OPEC countries (excluding US), will provide strength to crude prices. However, strong shale oil supplies from US will provide a cap on crude prices. We thus expect oil price to remain range bound. In Q4, ONGC’s and OIL’s earnings are driven by higher crude oil realisation (we have not factored in subsidy sharing) and dividend income. RIL: Standalone PAT to increase by 0.7% QoQ to R8,516 crore owing to increase in petchem volumes(+8% QoQ) led by ramp of ROGC unit.

Chemicals: A slight recovery in the global agro-chemicals environment, anti-dumping duty safe guards implemented/proposed on DMAC, DMF and Mono Iso-Propyl Amine and recent capacity additions augur well for Amine companies in 4QFY18E. We are expecting a margin pressure owing to higher RM prices of Methanol (up by 3.0% YoY) to R23.8/kg and Ammonia (up 2.0% YoY) to R23.2/kg. However, since Amine companies remain net importers, we expect the margin pressure to be slightly off-set by an appreciating rupee (appreciated by 3.9% YoY, 0.6% QoQ). The government has imposed an anti dumping duty on Dimethylacetamide (DMAC) and Mono Iso-Propyl Amine (MIPA) on 20th March’18 and 21st March’18 respectively on Chinese and Turkish manufacturers.

HDFC Securities

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