August18 , 2022

Reliance warns of global recession headwinds after profit miss

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Reliance Industries Ltd. has warned that a global recession can hurt oil refining margins, flagging the possibility of more pain ahead after the owner of world’s largest refining complex posted a lower-than-expected profit.

“Recession fears are overtaking oil market fundamentals, resulting in lower prices and margins,” Reliance’s Joint Chief Financial Officer V. Srikanth said in a post-earnings call Friday. 

He added that while there has been a lot of spotlight on the windfall gains for oil refiners like Reliance, there are also several headwinds such as higher operating expenses due to soaring freight and input prices. Raw material costs jumped 76% in the June quarter.

The International Monetary Fund will cut its global economic growth outlook “substantially” in its next update later this month, according to Ceyla Pazarbasioglu, its director for strategy, policy and review. Surging food and energy prices, slowing capital flows to emerging markets, the ongoing pandemic and a slowdown in China are making it “much more challenging,” she said. 

Crude oil prices have slipped in the past two weeks and if they fall this week, it will be the third weekly drop — the longest run of declines this year — primarily due to fears that a global slowdown may dampen demand for fuels.

In the past few months, Reliance’s refining business was boosted as it secured cheaper Russian oil shunned by western buyers amid the ongoing war in Ukraine. It was then exporting at higher prices and pocketing a healthy profit. That benefit is now eroding.

On July 1, India slapped a tax on fuel exports and crude oil production to tap windfall gains from surging prices but slashed it this week. Srikanth said this tax will reduce fuel exports from the country.

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