Macquarie says Iran situation is unique

Bloomberg

The global crude oil picture is a worrying one. In an interview with Bloomberg UTV, Jal Irani, Managing Director - Oil & Gas Research, Macquarie Group said crude imports may climb to $170 billion annually. He explained that every $10 increase in crude oil leads to 80 bps increase in inflation. He feels that the subsidy will rise to $7-8 bn/yr if costs are not passed to users.

Commenting on the Iran-Israel standoff, the expert said that Iran situation is unique, which may worsen the situation for India. “Replacing Iran crude cuts will be difficult for India”, he said.

Drop in light-heavy (L-H) spreads will be beneficial for Indian refiners, but Iran issue will push L-H spreads up, he said.

“Crude at $125/bbl ensures all producers operate at full capacity.” And oil is unlikely to stop at current levels of $125/bbl, he added. According to Irani, 20% of crude supply disruption will lead to a crude shock

His take on the Indian oil companies is as follows:

On RIL:

-RIL Q3 GRMs in Q3 light heavy witnessed a collapse
- Key trigger for RIL widening and widening of LH spreads
-See approval for 5th satellite well shortly for RIL
-See gas production of 35 mmscmd for RIL ahead

On Cairn India:

-Cairn India only pure Asian oil player
-1.3% earnings jump in Cairn for every $1 rise in oil prices

On BPCL:

-BPCL bin a complex refinery
-BPCL a top pick over valuable overseas upstream biz
-See Rs 265/sh value addition from Mozambique for BPCL

On ONGC:

-See volumes improving 1-2%/yr for ONGC in 6 months
-Very positive on ONGC

On Essar Oil:

-Essar Oil may be in a better position to switch from Iran