Explained — How RIL, MRPL, Chennai Petro may benefit from China's latest move

Shares of India's refining companies, MRPL, Chennai Petroleum, and Reliance Industries Ltd. (RIL), are trading with gains of up to 5%. This is despite a rise in crude oil prices hovering near the mark of $84 per barrel.

According to various media reports, China's government has told the country's oil refiners to suspend exports of diesel and gasoline due to the ongoing US-Iran war, which has prevented the arrival of crude from West Asia due to safety concerns around the Strait of Hormuz.

The refiners were asked to stop signing new contracts and negotiate the cancellation of shipments that have already been agreed upon. Exceptions were made for supplies to Hong Kong and Macau.

So how does this move benefit these companies?

According to Dayanand Mittal of JM Financial, in case such events continue to drag on, the countries will first start to focus on ensuring that there is enough petrol and diesel supply domestically and exports could take a back seat.

"In terms of near-term positive impact, yes, refiners benefit because diesel cracks shoot up sharply," Mittal told CNBC-TV18 in an interaction on Thursday.

Mittal went on to explain that for Indian companies, diesel if 40% to 50% of the total output and diesel cracks have gone up from $20 to as high as $35 to $45. Therefore, a $20 higher diesel crack could result in a $10 boost to the Gross Refining Margins (GRMs) of these companies, which, Mittal believes, is huge.

However, the JM Financial analyst also warned that while this could be a short-term positive for these companies, this could end up being a risk over the medium-term as well.

"If this thing (US-Iran war) continues then there could be decline in their volumes because the crude availability goes down. So, the throughput from 110% could down. First, the exports would be cut then there would be some rationalisation in domestic consumption as well like we are seeing in case of gas when industries are being asked to reduce their offtakes etc. So near-term positive but yes medium-term it could be negative if this continues.

All the refiners including oil marketing companies (OMCs), all gain in their refining business because of this jump in diesel, Mittal said.

A Bloomberg report had stated on Wednesday that MRPL has also halted crude exports due to the ongoing conflict.

Shares of Reliance Industries Ltd. (RIL) are the top gainers on the Nifty 50 index, and are the top contributors to the recovery seen by the index in today's session. The stock is currently trading 3% higher at ₹1,385.1.

Shares of Chennai Petro are trading 3% higher at ₹1,028.6, while those of MRPL are trading 3.6% higher at ₹198.24.