Why have MRPL and Chennai Petroleum stocks rallied so sharply in the last few weeks?

There is a very unique trend that is playing out in the stock markets these days. Even as crude prices are rising, a set of stocks like Chennai Petro and MRPL have been giving incredible returns in the stock market. What is common to both these stocks is that they are both pure-play oil refiners. It is these pure play refiners that have turned out to be multi-baggers in the stock markets. What exactly is the story behind these pure play refiners.

If you look at stock performance in the last few months, it is CPCL and MRPL that have stood out. In a sense, they have become a manifestation of how stocks can get the better of bad markets. Just look at these numbers. Since the start of 2022, MRPL is up 3-fold while Chennai Petro is up 4-fold. That is really abnormal returns since both these stocks have never given that kind of returns in a short span of time. These two oil companies have gained from record high gross refining margins (GRM) of the Singapore benchmark.

Gross refining margin shows us how much the refiner earns per barrel of oil. The global benchmark is the Singapore GRM and that has been in an amazing rally. It was $2/bbl in June 2021 and rallied to $8/bbl in December 2021. In June 2022 it has grown another 3-fold to $25.2/bbl. This is the highest level of GRM ever seen in the Singapore benchmark and is translating into bumper profits for pure oil refining stocks. Since MRPL and Chennai Petro are the only pure refining plays, they gained the most from the Singapore GRM story.