Global demand concerns likely to weigh on energy markets, says RIL

RIL's oil-to-chemicals (O2C) business, was mixed in terms of performance, reporting 10 per cent Y-o-Y growth in revenue in Q3, though there was a decline of 9.4 per cent sequentially

The Mukesh-Ambani-led Reliance Industries (RIL) has cautioned against the impact of global economic headwinds on energy demand, in a post-results conference call.

The company announced its Q3 results on Friday, where it reported a 15 per cent drop in net profit compared to a year ago. Net sales surged 17.4 per cent versus last year, driven by its retail, telecom and oil-and-gas businesses.

Oil-to-chemicals (O2C), RIL’s largest business segment, was mixed in terms of performance, reporting a 10 per cent year-on-year (YoY) growth in Q3 revenue. But it saw a decline of 9.4 per cent sequentially.

Earnings before interest tax depreciation and amortisation (EBITDA) for the O2C business, on the other hand, grew only 2.9 per cent versus a year ago.

Sequentially, it was up 16.4 per cent, led by operational flexibility in enabling fuel, feedstock and yield optimisation, the firm said.

Pointing to growing slowdown concerns internationally, including rising interest rates and contracting purchasing manager's indices (PMIs), the company's management warned in its post-results call that these factors could hurt overall oil demand in the future.

While India’s energy demand for fuel and downstream products has remained strong, global demand has declined, said RIL’s joint chief financial officer (jt CFO) Srikanth Venkatachari.

“Crude oil prices declined 12 per cent in Q3 of FY23 on demand and recession fears in Europe and the US,” Venkatachari said. “Demand from Asia Pacific, however, supported middle distillate cracks in the oil-to-chemicals business,” he added.

Middle distillate cracks are used to describe a range of refined petroleum products (such as jet fuel and diesel), which result from the separation of crude oil into components through fractional distillation. They are also called middle distillates because the products are removed at mid-height in the distillation tower during the multi-stage process of thermal separation.

Venkatachari also said that the addition of new global refining capacities in 2023, after a pause in 2022, would support export margins. However, a sharp upside in margins would be limited.

According to a recent report by S&P Global Commodities, the start of new refineries, including mega-refineries in the Middle East and Asia, would change crude and product trade flows in 2023.

Products coming out of these refineries could fill the void in Europe left by Russian oil exports, which have been sanctioned following its invasion of Ukraine, the report said.

At the same time, China has raised its first batch of 2023 export quotas for refined petroleum products by nearly half versus a year-ago, experts said. This is to spur refinery output, capture export margins and adapt to the slow domestic demand.

RIL said in its investor presentation following its Q3 results that it saw global oil demand growing by 1.9 million barrels a day in 2023, led by the US, China and India.

India polymer and polyester demand was expected to track well in 2023. But China remained a concern since its decision to relax Covid restrictions could spur both inflation and coronavirus cases. And, recession fears remained strong in the US and Europe.