Nomura has highlighted a sharp improvement in global refining economics, noting that refining companies could report windfall profits in the upcoming quarter as fuel crack spreads and refining margins surge. Among the stocks under its coverage, the brokerage believes Reliance Industries could be the key beneficiary of the ongoing spike in refining margins.
The brokerage noted that aviation turbine fuel (ATF) and diesel crack spreads have surged sharply to around $144 per barrel and $57 per barrel respectively, reflecting a significant tightening in global fuel markets.
Nomura added that ATF prices have surged to more than double their previous all-time highs, indicating strong demand and supply constraints in refined fuel markets. This has also translated into a sharp jump in refining profitability indicators globally.
According to the brokerage, Singapore gross refining margins (GRMs) have surged to around $30 per barrel, a significant increase compared with just $3.4 per barrel last week, underscoring the rapid improvement in refining spreads over a very short period.
While refining companies stand to benefit from this surge in margins, Nomura cautioned that the situation may be different for state-run oil marketing companies. The brokerage said that any benefit from higher GRMs for OMCs could be more than offset by significantly higher losses from fuel marketing, depending on retail pricing dynamics and government policies.
Disclaimer: The views and investment tips expressed above are those of the brokerage and do not represent the views of this publication. This article is for informational purposes only and does not constitute investment advice.