GRM surge on US & Saudi throughput cuts may sustain until Oct’19
Key recent developments/data points in the oil & gas sector:
* After recent attacks, Aramco has fully restored oil exports and will restore output & inventories by end-Sep’19 & full oil production capacity by Nov’19.
* In Q2FY20-TD, Singapore GRM at US$6.06/bbl is up 74% QoQ but down 1% YoY while OMC GRMs are estimated at US$7.1-7.6/bbl including inventory loss.
* Net auto fuel marketing margin is supernormal at Rs1.73/l in Q2FY20-TD and at Rs1.74/l in FY20-TD; OMCs’ integrated margin is US$9.4-10.0/bbl in Q2-TD.
* Recent Singapore GRM surge on US and Saudi refinery shutdowns; strength may last up to most of Oct’19: Reuters’ Singapore GRM was up 32% WoW at US$7.17/bbl last week and is at US$8.01-11.37/bbl in the last four days. The recent surge in GRM appears to have been driven by: 1) seasonal maintenance shutdown of US refiners after end of US summer driving season, and 2) cut in Saudi Arabia’s refining throughput by 1m b/d and import of petrol, diesel and fuel oil after the attacks on its oil production assets on 14-Sep’19. The GRM strength due to throughput fall in US and Saudi Arabia may sustain up to most of Oct’19. Saudi refining throughput may return to full capacity only in early Oct’19 after Saudi oil production returns to pre-attack levels in end-Sep’19. Press reports suggest that 1.6m b/d (8.5%) of US refining capacity would be shut for maintenance with shutdowns peaking in early-Oct’19. Already, at least ~0.5m b/d US refining capacity has been shut for maintenance. Petrol cracks would be supported by at least some of the feedstock otherwise used to produce petrol being diverted to produce IMOcompliant Very Low Sulphur Fuel oil (VLSFO). IMO would also boost diesel cracks.
* Oil price plunged from recent highs as Saudi supply was restored; output to be fully restored by end-Sep’19 and production capacity by Nov’19: Saudi Arabia’s energy minister and Aramco CEO in a press conference on 17-Sep’19 said:
1) exports are being / would be maintained at pre-attack levels in Sep’19 by dipping into reserves, ramping up production from unaffected fields and cutting local refinery throughput by 1m b/d;
2) 2.5m b/d (2m b/d from Abqaiq plant vs 4.9m b/d before attacks and 0.5m b/d from Khurais field) of the 5.7m b/d production capacity suspended on 14-Sep’19 has been restored;
3) production would be back to preattack levels by end-Sep’19 and would be at 9.8m b/d (same level as in Aug’19) in Oct’19;
4) production capacity would be restored to 11m b/d by end-Sep’19 and 12m b/d in Nov’19; and
5) crude taken from reserves would be replenished by the end of Sep’19.
Oil price is down by 6% from recent highs due to these announcements by Saudi Arabia suggesting that global oil supply, production, capacity and inventories would soon be restored.
* Gradual retail price hikes and correction in prices after Saudi announcements likely to keep auto fuel margins strong: Retail petrol and diesel prices have been hiked by Rs0.38-0.4/l in the last two days. We expect hikes to continue to pass on the rise in international prices over the next 15 days (retail prices are based on 15- day moving average). Net auto fuel marketing margin is at Rs1.45/l on 18-Sep’19 based on 16-Sep’19 refinery transfer price, but at Rs0.55/l if marked to market. In Q2FY20-TD, net marketing margin continues to be supernormal at Rs1.73/l.
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