Is Reliance going to benefit from the Russia-Ukraine war fallout?

The past two years have been a golden pot for many stock market participants where they have earned a huge proportion of wealth from the markets. But 2022 came with a huge correction where the market has fallen ~9.9% since January. Despite this recent correction, the crude oil prices still remain ~41% higher from the pre-war levels.

And due to this, the prices of petrol and diesel have recorded a sharp inclination in India. This has further helped domestic refiners register significant rise in their gross refining margins (GRM). We can further witness this from the Singapore benchmark GRM, which is a check for regional refining margins. 

Singapore GRMs currently trade over $20/bbl. Typical levels have been around $6-7/bbl on average. This rise in Singapore benchmark is impressingly benefitting refiners and OMCs.

Now some experts predict that these margins could remain on the higher-end as the global supply deficit for refined products remains unmet. And this situation is very much favorable for refiners as the refining margin environment remains robust.

Though India is sourcing discounted crude oil from Russia, thereby aiding GRMs and standalone refiners to report reasonable GRMs. Interestingly, Reliance Industries is going to be the key beneficiary of this energy inflation, because with every $1 per barrel improvement in annualized refining margins adds an estimated $400-450 million to the company’s consolidated EBITDA. And this is the main reason why many analysts are bullish on Reliance Industries. 

Now, these standalone refineries might be printing a lot of money by adjusting their GRM’s but one should monitor the core sector output, manufacturing PMI (Purchasing Managers Index), and auto sales data to gauge a better understanding of the target price for such stocks.