Can someone please explain impact of crude oil crash on Reliance?
Is it good or bad for Reliance when the Crude oil price goes down?
Reliance and ONGC, which explore and reprocess crude oil, fall under the upstream business in the oil and gas industry. OMCs like BPCL, IOCL, and HPCL fall under the downstream business.
Generally speaking, Crude falling is beneficial for OMCs and negative for companies like Reliance and ONGC as their selling price (realisations) come down.
The key missing nuance here though is: Gross Refining Margins (GRMs). If they are stable, even if crude oil prices are down, then it is neutral for Reliance. If they are going down even if crude prices are strong, then it can be negative for the company.
Plus, Crude oil fall is generally seen as a proxy for Global demand weakening like US recession etc in a scenario like the current one (Tariffs related outcomes) . So, in that case, it is negative for Reliance’s petrochem business but as crude oil weakening is good for Indian Economy as a whole, it can also get neutralized to some extent as it helps some of its other businesses like retail etc.
To summarize:
Crude oil prices going down in general is bad for Reliance, but keep an eye on GRMs to understand the real impact.
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Very well explained. Thanks!