November first half took traders by surprise when they saw sudden spike in Diesel cracks and sudden fall in Petrol cracks. You started seeing surge in gasoline inventories and that led to gasoline cracks to fall towards $1-2/bbl, lowest in last many months. Diesel cracks rose to about $19/bbl. Diesel cracks shielded weakness in GRMs for refiners. With cool off of diesel cracks, jet fuel cracks and mild recovery in petrol cracks, GRMs will continue to look challenging in November month and December first week. Chinese refineries will release more fuel in the Asian market as they have got the additional export quota from Chinese government. This will cool down the optimism in Diesel cracks in December.
What this tells us now ?
OMC stocks, Chennai Petro and MRPL are going to struggle in December quarter due to subdued refining margins. Inventory losses will be another dampener for OMCs. Thats why OMCs have been keeping high marketing margins because they want marketing margins to offset the weakness in refining operations and inventory losses which they are going to bear in December quarter. Companies which have higher jet fuel product slate or diesel product slate will outperform in December quarter. RIL is one of those refiners where jet fuel slate has been increased and Diesel has a good proportion of it.