According to reports from Nomura, the brokerage expects oil prices to remain elevated in the near term as the West Asia conflict drags on, but maintains a bearish medium- to long-term view. The firm anticipates Brent crude to normalise closer to pre-crisis levels once the dust settles, citing the prospect of the 'highest ever potential global oil surplus in 2027E'. Despite current elevated prices, Nomura believes the US sanctions on Iran are unlikely to have a major immediate impact on global supplies. Recent developments show Saudi crude tanker carrying 2 million barrels headed to Sikka port where Reliance Industries receives most of its crude oil, after crossing the Bab el-Mandeb Strait, even as tanker attacks and Houthi threats disrupted shipping in the Red Sea and Strait of Hormuz.
As reported by Nomura, India's dependence on Russian crude reached a record 51% of crude imports in July, with imports at 2.79 million barrels per day (mbpd). However, the discount on Russian Urals has 'almost disappeared', moving to a $1-2 per barrel premium over dated Brent from a $12 discount in mid-July. Nomura expects India's Russian crude imports to fall sharply in August, reflecting the changing dynamics in global crude sourcing. The current geopolitical tensions have also disrupted shipping through key maritime chokepoints, with vessel traffic through both Red Sea and Strait of Hormuz declining amid escalating regional tensions.
According to Nomura, refining margins remain strong with diesel and ATF cracks above three times historical averages. The brokerage believes refining margins 'may take longer to normalize', benefiting Reliance Industries, which it sees as a key beneficiary of structurally higher refining margins. For oil marketing companies (OMCs), Nomura maintains a positive stance despite near-term headwinds, with integrated margins at $8-13 per barrel. The strong refining margins are being supported by current geopolitical tensions that are creating supply chain disruptions and pushing up crude oil prices.
As reported by Nomura, the brokerage prefers IOCL and BPCL among oil marketing companies under its coverage, noting these margins have 'meaningful upside' if crude prices correct. The preference for these companies reflects their strong positioning to benefit from the current elevated refining margins and potential for further improvement if crude price corrections occur in the medium term. Recent developments show Abu Dhabi National Oil Company offering spot crude oil in a tender for Upper Zakum, Umm Lulu, and Das crude oil, with bids due by August 24th and valid until August 26th, providing additional supply options for Indian refiners.
