Reliance Industries may emerge relatively insulated from the ongoing volatility in global energy markets as supply disruptions in the Middle East push refining and petrochemical margins higher, according to a research note by Jefferies. The brokerage said the company’s oil-to-chemicals (O2C) segment is likely to benefit from the sharp rise in refining and petrochemical spreads triggered by disruptions in crude and refined product flows following the Strait of Hormuz crisis.
Shares of Reliance Industries currently trade below their long-term valuation averages, suggesting limited downside risk, Jefferies noted, while maintaining a “buy” rating on the stock with a cut in the price target of Rs 1,740 from the earlier Rs 1,820.
Refining And Petchem Spreads Surge
The blockade of the Strait of Hormuz has severely disrupted the flow of crude oil and refined petroleum products to key markets in Europe and Asia. With no immediate alternatives to replace these shipments, refining margins have surged in recent weeks. Diesel crack spreads have jumped sharply, while petrochemical feedstock shipments from the Middle East have also been hit by logistical disruptions. According to Jefferies, petrochemical spreads have widened by roughly 25% in the past few days alone and could remain elevated for the duration of the conflict.
ALSO READ: India Snaps Up 30 Million Barrels Of Russian Oil After US Waiver
The brokerage expects the stronger spreads to support margins in Reliance’s O2C segment, particularly in the first half of FY27. Supply disruptions are already translating into production cuts across global markets. Around 6.7 million barrels per day of oil production has reportedly been impacted so far, affecting output of fuels including petrol and cooking gas.
In addition, exports of naphtha – a key petrochemical feedstock – from the Middle East to North Asia are facing major constraints. Several petrochemical producers in Asia that depend heavily on imported feedstock have begun cutting production, which could further tighten product markets and sustain higher spreads.
Reliance’s Crude Sourcing Advantage
Jefferies believes Reliance could navigate the disruption better than many of its peers due to its diversified crude sourcing strategy. The company has access to Russian crude supplies and can also source oil via alternative routes outside the Middle East. Although freight costs have surged sharply due to the geopolitical tensions, refining and petrochemical margins have risen significantly since the conflict began – up roughly 35% and 25% respectively, according to Jefferies’ estimates.
Despite the positive outlook for the O2C segment, Jefferies has trimmed its earnings estimates for Reliance’s telecom business, Jio. Revenue and EBITDA forecasts for FY27 and FY28 have been lowered by 5-10%, partly reflecting uncertainty around tariff hikes. The brokerage expects delays in large telecom IPOs to potentially push back tariff increases, though it still forecasts double-digit growth in revenue and EBITDA for the telecom business over the next few years.
ALSO READ: Trump Announces Mega Oil Refinery In Texas, Built With Reliance Investment
Essential Business Intelligence,
Continuous LIVE TV,
Sharp Market Insights,
Practical Personal Finance Advice and
Latest Stories — On NDTV Profit.
