West Asia war: RIL to benefit, OMCs, CGDs may face margin hit, says Nomura
Iran war impact: Nomura sees windfall gains for refiners like RIL but margin squeeze for Indian Oil, BPCL and HPCL amid rising crude and gas disruptions
 "West Asia war: RIL to benefit, OMCs, CGDs may face margin hit, says Nomura")
Iran war to create winners in oil & gas sector: Nomura picks top stocks
The tensions in West Asia are showing no signs of abating. With most energy supply chains crippled amid refineries' and productions shut downs, India's oil and gas sector is feeling the maximum heat.
With this, industries spread across aviation, fuel marketing and gas distribution businesses, according to global brokerage Nomura, are likely to face margin pressure in the near-term.
While refiners may benefit from soaring product cracks, oil marketing companies and gas utilities could face margin pressure and volume risks, it said.
Refining companies may see windfall gains; RIL top gainer
Nomura said that the sharp rise in product crack spreads is expected to significantly benefit refining companies.
Notably, middle distillate cracks - particularly for aviation turbine fuel (ATF) and diesel - have surged to record levels amid supply disruptions from Middle East exporters, refinery outages, and restrictions on fuel exports from China.
ATF cracks have climbed to around $144 per barrel, while diesel spreads have jumped to nearly $57 per barrel. As a result, benchmark Singapore gross refining margins (GRMs) have surged to about $30 per barrel from roughly $3.4 per barrel just a week earlier.
"We believe refining companies will significantly benefit and may report windfall profits in the upcoming quarter. Among stocks under coverage, we expect Reliance Industries (Buy) to be the key beneficiary," it said.
Oil marketing companies face margin squeeze
In contrast, Nomura noted that state-run oil marketing companies (OMCs) such as Indian Oil, BPCL, and HPCL may struggle to benefit from the refining tailwinds as severe pressure on fuel marketing margins could offset the gains.
Nomura estimates that the current blended fuel marketing margin has slipped to a loss of around ₹19.8 per litre. The sharp increase in crude oil prices and refined product prices has widened the gap between retail fuel prices and procurement costs.
"Fuel marketing margins of oil marketing companies have been significantly impacted, and are at their lowest levels since July 2022. We estimate negative integrated margins for HPCL (Buy) due to the higher share of fuel marketing volumes where margins are very weak," Nomura said.
Gas utilities companies face supply, volume risks
Nomura said the ongoing war, involving Israel, the US, and Iran, is set to disrupt global gas markets, creating challenges for India's city gas distributors (CGDs), and LNG importers.
European and Asian gas prices have surged after Qatar halted LNG exports from its Ras Laffan facility, one of the world's largest LNG export terminals with a capacity of about 77 million tonnes per annum.
India has a long-term contract to import LNG from this facility, and the disruption has placed a significant portion of the country's LNG supply at risk.
Nomura estimates that nearly 48 per cent of India's LNG imports could be affected when disruptions in Qatar are combined with supply issues in the UAE.
"Higher spot LNG prices and reduced availability are likely to affect city gas distribution companies and LNG importers. Companies with a greater dependence on imported LNG may face volume pressure as industrial customers and fertiliser producers cut consumption in response to rising costs," it said.
Among gas utilities, the brokerage expects Petronet LNG and Gujarat Gas to face the most impact. Petronet LNG, which primarily handles LNG imports, could see the largest volume risk as it is almost entirely dependent on LNG supplies.
Short-term relief from Russian crude
That said, despite the disruptions, India's crude supply situation may remain relatively stable in the near term.
Russia has indicated that it can divert nearly 9.5 million barrels of crude oil already positioned near India, providing a temporary buffer against supply shortages.