Nomura: Energy Markets — Prices and Insights
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Nomura's report examines the Middle East crisis's impact on India's oil and gas sector. Following the outbreak of the Iran war, diesel and aviation turbine fuel (ATF) crack spreads surged to record highs of $76/bbl and $107/bbl, respectively, far exceeding the historical norm of $15-$20/bbl. Reliance Industries (RELIANCE IN, Buy) is positioned as the primary beneficiary among Indian refiners because its fuel retail business accounts for less than 10% of refining output. Conversely, state-owned oil marketing companies (OMCs) are likely to see retail losses exceed refining gains.
The report highlights a global supply shortfall of approximately 4.6 million bpd caused by the Strait of Hormuz blockade. In the natural gas sector, GAIL (GAIL IN, Buy) is the top pick due to its tariff-based model, while Petronet LNG (PLNG IN, Buy) may see a 40% volume decline from Qatar's force majeure. Spot LNG prices have jumped 80% in two weeks to roughly $19/MMBtu.
If crude oil remains above $100/bbl through March, the Indian government may reimpose a $25/bbl windfall tax (SAED) on domestic producers like ONGC and Oil India, generating an estimated INR 506 billion. This revenue could fund excise duty cuts of about INR 3 per liter on gasoline and diesel to offset OMC losses. OMCs face significant downside risk, with potential P/B-based declines of up to 54% for HPCL.