MOSL: OIL & GAS 2QFY18 PREVIEW-GRMs up YoY/QoQ-crude prices up YoY/QoQ-Inventory gains to boost refiners’ earnings

​OIL & GAS 2QFY18 PREVIEW: GRMs up YoY/QoQ; crude prices up YoY/QoQ; Inventory gains to boost refiners’ earnings

• Singapore complex GRM was USD8.3/bbl in 2QFY18 v/s USD6.4/bbl in 1QFY18 and USD5.1/bbl in 2QFY17. Inventory gains are likely to boost earnings further.
  
• Average Brent crude price was up 13% YoY and 3% QoQ to USD51.5/bbl. While the YoY/QoQ increase would benefit upstream companies, we expect lower operating costs to further help them. ONGC and Oil India should see YoY EBITDA increase.
  
• RIL is expected to clock a GRM of USD12.6/bbl, led by strong benchmark (premium of USD4.3/bbl). Petchem segment would do better despite decline in HDPE and LDPE delta, with RIL being an integrated player and strong volume growth in the segment..
  

Brent up 13% YoY and 3% QoQ; upstream subsidy nil in 2QFY18

• Brent crude increased, primarily due to Hurricane Harvey. The average for the quarter was up 13% YoY (3% QoQ) at USD51.5/bbl. OMCs are likely to post inventory gains for the quarter.
  
• We do not build any net under-recovery either for the OMCs or for the upstream companies.
  
• GRM at USD8.3/bbl, up from USD5.1/bbl in 2QFY17
  
• Reuters Singapore Complex GRM was up 62% YoY (29% QoQ), led by ~25% refinery outages on US Gulf Coast due to Hurricane Harvey.
  
• PE, PP and PVC delta declined sequentially. While POY spread declined, PSF spread was flattish sequentially. RIL being an integrated player is less likely to be affected by lower petchem deltas sequentially.