InvestorQ : Why has oil business come under so much strain in the Reliance latest quarter results? Do you see that pain continuing for more time?
Sam Eswaran made post

Why has oil business come under so much strain in the Reliance latest quarter results? Do you see that pain continuing for more time?

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Moii Chavate answered.
4 weeks ago
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The Reliance results announced on 30 October for the Sep-20 quarter were fairly significant. Apart from the sharp fall in profits and revenues, due to weak crude prices, this quarter marked a big shift in the old Reliance story. Mukesh Ambani himself is gradually underplaying the oil story of Reliance Industries. But oil prices were the issue.

It is true that refining has been under strain. The fall in profits in the quarter was largely on account of the slowdown in refining business. The top line and the bottom line of the company took a hit in the Sep-20 quarter as weak crude prices took its toll on performance.

You must remember that North Sea Brent crude prices are 40% lower on an average compared to Sep-19 from $65/bbl to $40/bbl. That also means lower gross refining margins or GRMs on oil refining. In addition, low oil prices also means that the inventory value on translation is lower and these combine to create an oil problem for RIL.

When oil prices go for a toss, it is not just oil extraction and production but also refining, marketing and petrochemicals business that get hit. Even petrochemicals came under strain in the Sep-20 quarter due to low crude prices.

Petchem did contribute more than refining to the EBITDA of the Reliance group in the Sep-20 quarter but it was clearly lower than what we have seen in the previous years. With COVID resurging in most of Europe, the fear is that crude prices may remain under pressure.

Now it does look like OPEC & Russia is will get together and cut supply once again in their next meeting. However, considering the demand paucity for oil globally, it is unlikely to change the equation too favourably for RIL in terms of oil prices.

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