According to the Indian Oil Corporation Ltd. (IOCL), Saudi Arabia can single-handedly counter oil shortages if they arise after US’ sanction on Iran. The narrowing spread between Brent crude and Dubai oil also provides IOCL more options.
Why is this important
- India imported 7,71,000 barrels/day from Iran in May, a 35% M-o-M increase from April.
- IOC plans to buy 7 million tons of crude from Iran in FY2019 versus 4 million tons in FY2018.
- The difference between the high sulfur crude from Iran and Dubai oil is small. This provides comfort and confidence to IOCL as it has a wide crude basket.
- IOC has added 16 new grades of crude during FY2018 and has the ability to process 175 different varieties, boosting flexibility in oil sourcing.
- IOCL has expanded the capabilities of its refineries to process cheaper and heavier grades, which make up close to 60% of its crude output.
Stocks to be impacted
While Indian government is planning to seek exemptions from the sanctions and trying for alternate payment mechanism, its stance on Iranian imports is not clear yet. While India continued with purchases from Iran during the last round of sanctions, the government has advised the refiners to prepare themselves for zero import volumes this time.
Indian Oil Corp Ltd (CMP: Rs 155, MCap: Rs 1,50,533 crs, FY2020E EV/EBITDA: 5.85)
Hindustan Petroleum Corp Ltd (CMP: Rs 261, MCap: Rs 39,977 crs, FY2020E EV/EBITDA: 5.29)
Bharat Petroleum Corp Ltd (CMP: Rs 374, MCap: Rs 81,173 crs, FY2020E EV/EBITDA: 7.49)