CPCL, MRPL shares surge up to 18%; what's driving these refinery stocks?

Shares of Chennai Petroleum Corporation Limited (CPCL) and Mangalore Refinery and Petrochemicals Limited (MRPL) rallied up to 18% in opening trade on Tuesday despite weakness in the broader market. The stocks of these two petroleum refining outperformed the benchmark indices amid optimism that surge in regional gross refinery margin (GRM) may boost their profitability. The Singapore gross refining margins (GRMs), a benchmark of profitability for crude refiners, touched a record high of $25.2 a barrel, indicating strong demand prospects for refiners globally.

Shares of Chennai Petroleum, a subsidiary of Indian Oil Corporation, gained as much as 16.33% in opening trade to hit a new 52-week high of ₹374.80 on the BSE. Extending its gaining streak for the third session, the stock opened with a gain of 6.96% at ₹343.50, against the previous closing price of ₹321.15, driven by strong volume. On the volume front, there was a spurt in buying as 4.17 lakh shares changed hands over the counter on the BSE as compared to two-week average volume of 2.45 lakh stocks.

CPCL shares gained nearly 25% in the last three sessions and have given around 250% returns this year, outperforming the benchmark indices. In the year-to-date, this smallcap PSU stock has risen from ₹103 to ₹375, generating a return of 247% in this period.

In a similar trend, Mangalore Refinery, a division of Oil and Natural Gas Corporation (ONGC), opened higher with a gain of 7.18% at ₹97, against Monday’s closing price of ₹90, and rallied as much as 18% to touch a fresh 52-week high of ₹106.45 on the BSE. The smallcap stock has gained 29% in the past three sessions and 134% since the beginning of the calendar year 2022. It has climbed 39% in a month and 100% in the last one year.

Among others, ONGC, Indian Oil, Reliance Industries, GAIL India, HPCL, BPCL, and Adani Total Gas rose nearly 2% in the first hour of trade so far. In contrast, the BSE benchmark was trading 558 points lower at 55,117 levels, following weak cues from Asian peers amid rate hike concerns.

Surge in Singapore GRM boosts refinery stocks

The Singapore GRM -- a gauge of regional gross refining margins -- hit a record high of $25.2 a barrel due to rising demand for refined products globally. This augurs well for Indian refiners as they process raw crude into refined products.

In the calendar year 2022, Singapore GRMs have surged over four times. In the Q1FY23, it averaged around the $20 per barrel mark compared with $8.1 per barrel in Q4FY22.

Gross margin is one common measure of refinery margin and is the amount that refiners earn from turning each barrel of crude oil into fuel products. A better margin bodes well for Indian oil refiners as it would boost their earnings.