Indian state oil refiners see strong margins for 2018

Above, the Bharat Petroleum refinery complex in Mumbai. Indian refiners hope global prices will remain sub-$70 per barrel as world oil production rises while new refining capacity does not keep the pace. (Reuters)
Updated 22 February 2018
0

Indian state oil refiners see strong margins for 2018

MUMBAI/NEW DELHI: India state refiners expect their profit margins to hold their strength this year as demand growth accelerates for fuel products amid a record $93 billion spent on infrastructure and stable crude oil prices, company executives and analysts said.
India’s sales of cars and especially motorbikes are forecast to rise rapidly, even as the development of a Delhi-Mumbai industrial corridor drives consumption of the country’s primary fuel products, diesel and gasoline.
The infrastructure program for fiscal 2018/19 calls for more than 80,000 kilometers in new highways to better connect rural areas with urban hubs. Roads and other construction require oil-based products such as tar and plastic piping, and fuel to move materials by truck and rail.
“They (these projects) will have a cascading effect on fuel demand,” said R. Ramachandran, director of refineries at Bharat Petroleum, adding that this would be reflected directly in strong refining margins.
India’s annual fuel demand, made up mainly of diesel and gasoline, is expected to grow 7.5 percent in 2018, according to a report by BMI Research, a unit of Fitch. That compares with 5.4 percent last year, according to government data.
“Strong fundamentals and rising demand in India indicate that refining margins will remain strong in the near term, for at least six months,” Ramachandran said.
Refining margins also rely heavily on global crude oil prices, currently around $65 a barrel, and on the status of world inventories of refined products.
Indian refiners hope global prices will remain sub-$70 per barrel as world oil production rises while new refining capacity doesn’t keep the pace.
The International Energy Agency said this month it expects oil production to slightly outpace demand this year, especially thanks to still rising output in the United States.
M. K. Surana, head of Hindustan Petroleum Corp, said he expected international crude prices between $62 and $68 a barrel this year, as long as there are no geopolitical crises or technical disturbances like damage to the Forties pipeline.
Based on that expectation, India’s refiners should see refining margins, also known as cracks, in the range of $7-$8 per barrel for all three state-owned refiners.
“Products demand continues to rally on better industrial performance and weather-related support ... Rising oil prices have done little to dampen the growth so far,” said Sri Paravaikkarasu, head of East of Suez Oil, at consultancy FGE.
FGE expects Singapore margins to hold around $6-$7 a barrels due to upcoming refinery maintenance and summer demand.
“The margins for Indian refiners will be slightly better ... as India prices its products on import parity basis,” she said.
Asia’s benchmark margins in the oil trading hub of Singapore currently stand around $7.20 per barrel.
Better refining margins for the state-owned refiners — and improved profit from selling retail fuel — will pump more cash into government coffers ahead of key elections this year and next for Prime Minister Narendra Modi, who needs money for his ambitious health care and infrastructure programs.
The cash inflow would come just ahead of eight state elections this year and national elections in 2019.
Healthy profits will also help the state-owned refiners to continue spending on expansion plans.
India aims to increase its refining capacity by 77 percent to about 8.8 million barrels per day (bpd) by 2030, which will cost dozens of billions of dollars.
State-run refiners Indian Oil, Hindustan Petroleum and Bharat Petroleum, that sell most of their output locally at prices linked to global rates, largely reported strong profits and margins for the October-December quarter.
While Indian gasoline and diesel prices are linked to global rates, during state or central elections private rivals say state-owned firms often do not increase retail selling rates — a risk to margins, analysts point out, only if crude prices suddenly spike.
“We expect margins to improve ... Cracks appear to be good,” said B. V. Rama Gopal, head of refineries at IOC.


Saudi stocks receive landmark emerging markets upgrade from MSCI

Updated 21 June 2018
0

Saudi stocks receive landmark emerging markets upgrade from MSCI

  • Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months
  • MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds

LONDON: Saudi Arabian equites are poised to attract up to $40 billion worth of foreign inflows, following a landmark decision by index provider MSCI to include the Kingdom’s stocks in its widely tracked Emerging Markets index.

"MSCI will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing on a pro forma basis a weight of approximately 2.6% of the index with 32 securities, following a two-step inclusion process," the MSCI said in a statement late on Wednesday night Riyadh time.

“Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment,” Salah Shamma, head of investment for MENA at Franklin Templeton Emerging Markets Equity, told Arab News. 

“It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC).”

Market authorities in Saudi Arabia have introduced a series of reforms in the past 18 months to bring local capital markets more in line with international norms, including lower restrictions on international investors, and the introduction of short-selling and T+2 settlement cycles.

Such reforms prompted index provider FTSE Russell to upgrade the Kingdom to emerging market status in March, opening the country’s stocks up to billions worth of passive and active inflows from foreign investors.

MSCI’s Emerging Market index is tracked by about $2 trillion in active and global funds. The inclusion of Saudi stocks in the index, alongside FTSE Russell’s upgrade, is forecast to attract as much as $45 billion of foreign inflows from passive and active investors, according to estimates from Egyptian investment bank EFG Hermes. 

The upgrade announcement was widely expected by the region’s investment community, following a similar emerging markets upgrade announcement by fellow index provider FTSE Russell in March. 

“MSCI index inclusion will be a historic milestone for the Saudi market as it will allow for sticky institutional money to make an entry in 2019 which will help deepen the market,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.