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MOSL: OIL & GAS 1QFY18 PREVIEW-Crude prices down QoQ-GRMs up YoY/flat QoQ-Inventory losses to dampen refiners’ earnings

​Oil & Gas 1QFY18 PREVIEW: Crude prices down QoQ; GRMs up YoY/flat QoQ; Inventory losses to dampen refiners’ earnings

Singapore complex GRM was USD6.4/bbl in 1QFY18 v/s USD6.4/bbl in 4QFY17 and USD5.0/bbl in 1QFY17. Reported earnings are likely to remain subdued due to inventory losses during the quarter.

Average Brent crude price was up 9% YoY but declined 7% QoQ to USD50.2/bbl. While the QoQ decline would impact upstream companies, we expect lower operating costs to benefit them. ONGC and Oil India should see a YoY/QoQ increase in EBITDA.

RIL would report lower GRM, led by narrowing light-heavy differential. Petchem segment would benefit due to increased HDPE and LLDPE delta.

Brent declined 7% QoQ (grew 9% YoY); upstream subsidy nil in 1QFY18

• Despite the production cut extension taken by OPEC and non-OPEC countries, crude oil prices declined in 1QFY18. The average for the quarter was down 7% QoQ at ~USD50.2/bbl. OMCs are likely to post inventory losses for the quarter.
• We do not build any net under-recovery either for the OMCs or for the upstream companies.

GRM at USD6.4/bbl, up from USD5/bbl in 1QFY17

• The regional benchmark Reuters Singapore GRM was up 28% YoY and flat QoQ, led by improvement in fuel oil cracks.
• PE, PP and PVC delta improved sequentially. While POY spread increased, PSF spread declined sequentially during the quarter. RIL is expected to benefit from QoQ/YoY strengthening in deltas and increase in petchem volumes.