Our calculation of India refining margins benchmarked to domestic refined products mix shows moderate improvement in 3QFYTD from 1HFY20 levels contrary to decline in Singapore complex margins. Imminent implementation of IMO 2020 rules for marine fuels has already driven a sharp correction in fuel oil spreads and an increase in sweet-sour crude premiums, both may continue in the near term.
We expect RIL to benefit from its nil fuel oil yield and ability to process heavy sour crudes and HPCL to be negatively impacted given its high fuel oil yield. We introduce Kotak India refining margins index linked to the product slate of domestic refining industry with 8% fuel and loss, Singapore product prices and Dubai crude oil prices and notional import duty differentials.
