In the last few years, the spreads between light and heavy crude oils have been narrowing, which has also impacted RIL's GRMs, which have declined from peak levels. According to Axis Capital's analysis, weakening fuel oil fundamentals would reduce the demand for heavier crude oil, further widening the light-heavy differential, beneficial for complex refiners like RIL.
Refining margins continue to be highly volatile and sadly, the status quo doesn't look likely to change any time soon. Vandana Hari, Asia editorial director of Platts, a leading provider of information on the energy sector, said, "Regardless of the uncertainty round the export duty reform, observers and analysts believe Russia's large-scale refinery modernisation plan would continue. That means simple refineries have to invest in fuel oil upgrading units, or shut, though now the deadline has shifted down the road by a couple of years. The shift, under way in Russia, would increase the country's supply of ultra low sulphur diesel (ULSD) and other clean products to the European markets."
As a result, the collapse in fuel oil demand would accelerate from 2015. State-owned corporations like ONGC in India would suffer, while private ones like RIL would gain substantially. For many reasons, refineries are expected to process expensive light crude oil to produce gas, oil and diesel, which would increase the differential between light and heavy crude oils.
RIL has been shoring up its margins by processing the cheaper heavy crude. Over two years, it has moved towards processing heavier crude oil grades. According to Axis Capital, RIL's average American Petroleum Institute gravity through 2007-2011 was 29 (light crude), which has reduced to 26 (heavy crude) in first nine months of 2013. Analysts say RIL's crude oil sourcing has helped the margins and the company may have saved $2 a bbl in its crude sourcing costs.