>Illusive recovery in GRMs

Crude traps sector and government likely to rescue in Q4FY12


GRMs seemed to be recovering in the month of January but it was an illusive recovery. With rising crude prices the GRMs also felt the heat and started declining from February, continuing till March. Benchmark Reuters Singapore Complex GRMs which averaged US$9.1/bbl in January declined to US$5.7/bbl in the month of March. Overall, the GRMs averaged US$7.7/bbl in Q4FY12 against US$7.9/bbl in Q3FY12. Sequentially, Gasoline-Crude and Naphtha-Crude cracks improved while Diesel-Crude, Jet Kero-Crude and FO-Crude cracks declined thus eliminating the benefit. GRMs have recovered a bit and are now hovering around US$7/bbl.



■ Iran issue leads crude to US$125/bbl
EU embargo on Iranian crude kept the crude prices (Brent) higher during February and March which averaged US$119.8/bbl and US$125.1/bbl respectively. Thus Q4 crude prices averaged
US$118.6/bbl. Even rising Libyan production did not arrest the rising crude prices. Crude prices are likely to remain higher in near to medium term due to the Iranian issue. We have recently upgraded our crude price assumption for FY13E and FY14E to US$120/bbl and US$110/bbl from US$104/bbl and US$100/bbl respectively.



■ Under-recoveries scale higher at Rs448bn: Devoid of price hikes in regulated fuels, under-recoveries scaled up further to an estimated Rs448bn in Q4. However, the OMCs are expected to be adequately compensated through upstream subsidies and cash from the government.


■ Crude estimate and rupee-dollar exchange rate for FY13E and FY14E revised: We have revised our crude price assumption to US$120/bbl and US$110/bbl and rupee-dollar exchange rate to Rs50/US$ to Rs48/US$ for FY13E and FY14E respectively. Incorporating these changes we have revised our estimates for RIL, Cairn, Gujarat Gas, Petronet LNG and IGL with subsequent changes in our target price and recommendation.

To read report in detail: OIL & GAS SECTOR
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