Asian Oil Refiner Bonds Weather Oil Plunge as Producers Suffer

Not every oil and gas company is suffering equally from crude’s rout.

In the Asian bond market, refiners are weathering the plunge in oil prices better than production firms whose revenues are dropping. The extra yield investors demand to hold producer Oil & Natural Gas Corp.’s 4.625 percent 2024 notes rose above the premium on Bharat Petroleum Corp.’s 4 percent 2025 securities in November for the first time since issuance and remains 13 basis points higher, according to data compiled by Bloomberg.

“Downstream oil-refinery margins are holding up much better, so credit spreads for the sector are holding up very well across the board,” says Harsh Agarwal, head of Asian credit research at Deutsche Bank AG. “Depending on what view you take on oil, this looks like a better bet than upstream.”

While Brent crude has rallied about 20 percent in the last two weeks, prices are still down more than 50 percent since November 2014, when the Organization of Petroleum Exporting Countries refrained from cutting output. China Petroleum & Chemical Corp. and Cnooc Ltd., two of China’s biggest producers, were among Asian energy firms whose credit ratings were cut or put under review by Standard & Poor’s after it reduced its crude price forecast.

Moody’s Investors Service also last month placed seven South and Southeast Asian energy firms on review for possible downgrades.

“At the moment, the downstream operators enjoy lower input costs while they can maintain margins,” says Arthur Lau, co-head of emerging market and head of Asia ex-Japan fixed income at PineBridge Investments. “But if demand for refined products begins to weaken then even downstream operators will suffer.”

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