Reliance, MRPL, other refinery stocks rally up to 5% as China reportedly plans to suspend diesel, gasoline exports

Shares of Reliance Industries, Chennai Petroleum Corporation, MRPL, other refiners rallied up to 5% on Thursday on reports that China plans to suspend exports of diesel and gasoline.

Reliance Industries share price jumped nearly 3%, while Chennai Petroleum Corporation shares rallied 5.4%, and Mangalore Refinery and Petrochemicals stock price surged as much as 5.72%.

Among PSU stocks, Indian Oil Corporation shares rallied 2.87%, Hindustan Petroleum Corporation Ltd (HPCL) share price gained 2.37%, while Bharat Petroleum Corporation Ltd (BPCL) share price rose 1.37%.

According to a Bloomberg report, China’s government has told the country’s largest oil refiners to suspend exports of diesel and gasoline as an escalating war in the Middle East disrupts the arrival of crude from one of the world’s largest producing regions.

Officials from the National Development and Reform Commission, China’s top economic planning body, reportedly met refinery executives and verbally directed them to temporarily halt refined fuel exports with immediate effect, Bloomberg said, citing people familiar with the matter.

Refiners were also asked to stop signing new export contracts and negotiate the cancellation of previously agreed shipments, the report added.

However, the suspension will not apply to jet and bunker fuel held in bonded storage, or to supplies destined for Hong Kong and Macau.

Major Chinese refiners such as PetroChina, Sinopec, CNOOC, Sinochem Group and private refiner Zhejiang Petrochemical regularly receive fuel export quotas from the government.

Meanwhile, a reduction in Chinese fuel exports — one of Asia’s largest sources of refined product supply — could further tighten the regional market and drive refining margins higher.

Diesel processing margins were hovering near three-year highs at around $49 per barrel on Thursday, according to LSEG pricing data, while jet fuel cracks were trading above $55 per barrel.

Impact on Indian refiners

Analysts believe that if other global players reduce fuel supplies to international markets, it could have a short-term positive impact on Indian refiners.

However, the rally in shares of Reliance Industries, Chennai Petroleum Corporation and Mangalore Refinery and Petrochemicals may also be driven by a sharp rise in Singapore gross refining margins (GRMs), which are currently around $27 per barrel, noted Avinash Gorakshkar, an independent markets analyst and wealth advisor.

“The supply disruption arising from tensions in the Middle East could potentially prompt India to consider similar measures. However, much will depend on whether refiners comply with China’s call to suspend exports. Ultimately, companies will take a decision only if it aligns with their commercial interests,” Gorakshkar added.

According to Dhaval Popat, Analyst - Energy, Choice Institutional Equities, that China’s export ban removes a meaningful supply cushion from Asia’s already tightening refined products market, pushing Singapore gasoil and gasoline crack spreads higher.

“This benefits Indian refiners’ gross refining margins (GRMs) — but through two distinct channels depending on the refiner. The average realised price for largely pure play refiners – Chennai Petroleum Corporation and MRPL is set using a Trade Parity Price: a weighted average of 80% Import Parity Price and 20% Export Parity Price. Therefore, as Singapore cracks rise, the TPP automatically lifts their domestic realisations,” said Popat.

Hence, he believes Chennai Petroleum Corporation and MRPL benefit out of China’s export ban on diesel and gasoline.

Moreover, as the Asian gasoil market tightens, export flows from Asia to Europe tend to slow, reducing incremental supply into European markets and pushing European crack spreads higher. Since European diesel balances rely partly on imports from Asia and the Middle East, any reduction in these flows tightens regional supply and lifts ARA gasoil cracks, he added.

“For Reliance, stronger crack spreads in both the Singapore benchmark and the European ARA market translate directly into higher realized prices – thus improving profitability,” said Popat.

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(With inputs from Bloomberg)

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