How Reliance refinery is making millions as Ukraine war windfall

The facility is buying discounted cargoes of crude after self-sanctions on Russian fuels by some European Union companies pushed up margins.

Russia’s invasion of Ukraine has opened arbitrage opportunities so enticing that Reliance Industries Ltd. deferred maintenance work at the world’s biggest oil refining complex to churn out more diesel and naphtha after prices surged.

The refiner, owned by Indian billionaire Mukesh Ambani, is buying discounted cargoes of crude after self-sanctions on Russian fuels by some European Union companies pushed up margins on some oil products to three-year highs. 

Reliance’s giant twin refineries can process about 1.4 million barrels daily of almost all varieties of crude. The firm is also known for its agility in oil trading, which helps it benefit from price swings.

“We have minimized feedstock cost by sourcing arbitrage barrels,” Joint Chief Financial Officer V. Srikanth said in a briefing Friday. 

Indian refiners have been soaking up discounted barrels shunned by the U.S. and its allies seeking to isolate Vladimir Putin’s government. Flows of Russian oil to India aren’t sanctioned, and while purchases remain minuscule in comparison to India’s total consumption, they help keep a lid on rapidly accelerating inflation that’s stoking protests in other parts of the subcontinent.

State-owned and private refiners in the world’s third-biggest oil importer have bought more than 40 million barrels of Russian crude since the war in late February, Bloomberg has reported.

Diesel margins shot up 71% in January-March from the previous quarter, while those on gasoline were up 17% and naphtha prices rose 18.5%, according to a presentation by the company. 

Mumbai-based Reliance, which earns about 60% of its income from oil, reported lower-than-expected quarterly profit Friday as higher tax liabilities and costs across other parts of the conglomerate offset gains made from fuel exports. Net income rose 22% to 162 billion rupees ($2.1 billion) in the three months ended March 31, falling short of the average 168.2 billion rupee profit estimated by a Bloomberg survey of analysts. 

“Reduced diesel imports by Europe from Russia and low global inventories” will support margins, Srikanth said. However, a possible disruption from the coronavirus surge in China and other supply chain issues could hurt demand, he added.