Crude oil price witnessed a sharp volatility in the month of Mar'21 as it reached USD 70/bbl in the first half of month before falling back to USD 63/bbl. Fall was due to four straight weeks rise in US crude inventories after refineries in the south were forced to shut due to severe cold weather. Also, a number of European countries halted use of AstraZeneca's COVID-19 vaccine because of concerns about possible side effects. Germany saw a rise in coronavirus cases, while Italy entered into a national lockdown for Easter and France will also introduce tougher restrictions.Brazil too witnessed its deadliest month as deaths quadrupled in the month of March and stricter lockdown measures were put in place. Asian bullish demand scenario may also be plateauing amid rise in Covid cases. This has put sustainable crude oil demand recovery in jeopardy, said IDBI Capital in its reports.
On the other hand, in the recently concluded meeting, OPEC+ decided to restore production cuts gradually. The group will add back 350,000 bpd in May, 350,000 in June, and 400,000 in July. Meanwhile, Saudi Arabia over the same period will restore 1mbpd of voluntary cuts that it made on its own. US crude inventory rose 17mn bbls to 502 million barrels in March. Brent crude oil price rose by 5.2% MoM to average USD 65.2/bbl. US total rig counts improved to 417 at the end of Mar'21 from 402 in Feb'21, though significantly lower compared to 728 rigs in same period last year. IDBI Capital expects crude oil prices to go south on the back of rise in Covid-cases, higher supply and rising inventory and rigs levels.
Singapore GRM fell by 16% MoM for the month of March to average USD 1.8/bbl. Cracks for Gasoil and Naphtha fell to USD 4.3/0.9/bbl in Mar’21 versus USD5.5/1.0/bbl in Feb'21. However, rest of the products' crack spread improved during the month. Gasoline and Jet Kerosene improved to USD 6.5/2.9/bbl in Mar'21 vs USD 2.4/2.8/bbl in Feb'21 respectively. Fuel Oil spreads also improved to a negative USD 7.6/bbl in Mar'21 from a negative USD 8.1/bbl MoM. US refinery utilization improved to 77.7% versus 72.7% MoM, still lower than five-year average of 89%.
Commenting on the outlook, IDBI Capital said, "Petchem margins have seen improvement in March on the back of strong domestic demand. Further, marketing margin also improved a bit after seeing a fall in Feb’21. Further, domestic gas volume is continuously on a rise and we expect RIL and GAIL to benefit with this. Spot LNG prices has also traded in a narrow range in recent past at the lower levels."
The broking firm continues to like HPCL over BPCL and IOC in OMCs space on the back of new refinery capacity, expected improvement in GRM and compelling valuation. "We also like GAIL and RIL which are likely to benefit from strong petchem margin, higher domestic gas volume."
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