The Red Sea crisis has disrupted shipping routes, pushing refining margins significantly higher. The benchmark Singapore gross refining margin is seeing an uptrend, currently up more than 56% compared to the December quarter (Q3FY24), as illustrated in the chart here.
This trend is poised to benefit refiners, including Reliance Industries Ltd's oil-to-chemicals (O2C) segment, which accounted for more than 36% of its consolidated Ebitda for the nine months ended December. Jefferies India notes that the tanker transit by Red Sea has slipped over 50% since December.
“This has led to longer shipping times and delayed supplies driving up diesel spreads about 40% since December," said Jefferies’ analysts in a report on 19 February. The forward curve suggests diesel spreads could remain elevated into Q1FY25, they added.
After a weak Q3FY24, the ongoing quarter is likely to be strong for Reliance’s O2C segment. The company's O2C segment was impacted in the December quarter due to the planned maintenance, inspection shutdown and lower downstream chemical margins resulting in a nearly 14% sequential drop in Ebitda.
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