Oil cools off
Regardless of IEA’s upward revision of global oil demand, oil prices are down 13% MoM to US$80/bbl (YTD US$101/bbl). A sharp economic recovery in China may warrant supply increases for the price weakness to sustain. The SG GRMs average at US$7/bbl (YTD US$12/bbl); weakness in gasoil and ATF is partly offset by gasoline and FO cracks. Petrochemical deltas may sustain their increase, if China’s demand remains strong, and restocking begins. Such a scenario bodes well for RIL and GAIL’s Petrochemical businesses. As such MoM, the PVC and PP deltas are up, while PE, MEG and PX deltas are down.
OMCs trying to recoup some losses
POL consumption in India is up 10% YoY and 2% MoM. Such uptick bodes well for OMCs that are yet not passing on the benefits of weak oil and spreads. Blended marketing margins are nearly in positive territory, though on YTD basis, remain deep in red (-Rs11/ltr). And to that extent, analysts at IIFL Securities do not envisage any meaningful reduction in pump prices. This bodes well for CGDs, which may gain from lower input prices, should the Kirit Parikh Committee recommendations get accepted.
RIL a good tactical trade
The PSUs and OMCs, in particular offer asymmetric payoffs – given their depressed valuations and possible swing in earnings in H2. Analysts at IIFL Securities reiterate their positive stance on CGDs (GGAS top pick – which can also be owned through less expensive GSPL, its holding company). RIL, meanwhile, seems to be a good tactical play, as outlook on commodity businesses improves. Ramp-up in gas production and its auction, is the next trigger for the stock.
