Reliance shares slide 8% as diesel cracks hit $42 week

Stock falls despite a supportive refining setup

Reliance Industries Ltd (RIL) shares fell about 4% this week and nearly 8% over the past month as geopolitical tensions in the Middle East lifted risk sentiment across energy-linked stocks. The move came even as analysts argued that higher crude and LNG prices may not hurt Reliance in the near term. A JM Financial report pointed to improving refining economics, especially in diesel, as a key offset. Reliance shares also saw a separate bounce of about 3% amid rising crude prices and expectations of stronger refining profitability. Over a longer period, the stock has gained nearly 17% over the past year, indicating that the recent decline sits within a volatile commodity-driven tape. Market participants are now balancing near-term earnings tailwinds in refining against broader uncertainty around oil supply routes and risk-off flows.

Middle East tensions shift focus to supply and crack spreads

The current market narrative is tied to potential disruptions to global oil supply from the Middle East. For refiners, the critical variable is not crude prices alone, but the spread between crude input costs and the selling prices of refined products. That spread is captured by the gross refining margin (GRM), and within GRM, product cracks like diesel matter most. Analysts noted that complex, export-oriented refiners tend to benefit when diesel cracks move above $10 per barrel, because product prices rise faster than crude when supply is tight. In the scenario described by analysts, if crude rises from $10 to $10 a barrel but diesel and gasoline rise faster, GRMs expand. This is why the stock can rally on higher crude when product cracks widen at the same time. The renewed interest in Reliance’s oil-to-chemicals (O2C) business is anchored in this relationship.

Diesel cracks jump to $15-$12, up from $10

JM Financial said diesel cracks surged to about $15-$12 per barrel over the past two days from around $10 earlier. The move matters for Reliance because diesel contributes a large portion of its refinery output. With diesel accounting for roughly 40%-50% of the yield at Reliance’s refinery, stronger diesel cracks can translate quickly into higher GRMs. The brokerage said sustained diesel cracks of around $10 per barrel could lift Reliance’s GRM by $1-$1 per barrel. The same report quantified the operating leverage: every $1 per barrel increase in Reliance’s GRM could raise annual EBITDA by about ₹4,500 crore, or roughly 2.2%. It also estimated an addition of about ₹29 per share, or 1.7%, to valuation for each $1 per barrel GRM improvement.

Petrochemicals: insulation from crude-linked feedstock costs

JM Financial also highlighted the petrochemical side, where the benefit is less direct but still relevant when crude rises. Petrochemical product prices typically rise with crude, the report said, while Reliance’s feedstock costs are less sensitive because it has limited dependence on crude-linked naphtha. The company’s petrochemical feedstock mix was described as roughly 25% ethane, 50% off-gases and about 25% crude-linked naphtha. This composition can cushion margins when crude-linked input costs rise faster than non-crude feedstocks. Still, the broader risk remains that rising crude can compress chemical margins if chemical prices lag, since petrochemical products like polyethylene and polypropylene are derived from crude-based chains. Investors are therefore watching both refining cracks and chemical spreads, not crude alone.

Conflicting signals: recent selloff, a 3% rebound, and target range

Reliance shares recently rallied about 3% amid optimism that improving refining economics could lift earnings. Some brokerages suggested the earlier selloff may have been overdone given the sharp move in diesel cracks. Separately, consensus analyst targets were cited in a range of ₹1,700 to ₹1,800. These targets were framed alongside expectations that refining margins remain elevated and that the telecom and retail businesses continue to expand. At the same time, the stock’s short-term swings show how quickly sentiment changes with energy headlines. Investors are now tracking crude prices, crack spreads, and Middle East developments for confirmation that elevated cracks can persist.

Asia fuel supply tightness adds another layer

Analysts and refinery sources also pointed to tightening conditions in Asia. Asian refining output was expected to fall in April, with crude imports described as hitting a decade-low as refiners were forced into processing lighter grades. The report said this would reduce diesel and jet fuel production by at least 1 million barrels a day. The Strait of Hormuz closure was described as having the greatest impact on Asia, a region that accounts for 37% of global refinery output and normally sources about two-thirds of its crude from the Middle East. Kpler’s preliminary data was cited as showing crude imports into Asia falling 22% annually to 20.40 million bpd, the lowest level since 2016. These conditions can keep product cracks firm, supporting refining margins for exporters, but they also raise macro risks for crude-importing economies.

Earnings reality check: retail slowdown and profit misses

While refining tailwinds matter, recent results and segment trends have also shaped the stock. Reliance shares fell as much as 2.7% after it missed third-quarter profit estimates amid a slowdown in retail earnings growth. The company reported profit of ₹18,645 crore for the October-December quarter versus an analyst average estimate of ₹19,644 crore. Retail core margins were cited at 8% in the first quarter of this year, down from 8.6% last year, reflecting festive discounts, investments in hyper-local delivery startups and the impact of India’s new labour code. The segment’s core earnings grew 1.3% to ₹6,915 crore, compared with 9.5% growth a year ago. Reliance’s oil and gas segment was also described as weakening due to lower production and softer price realisations from ageing KG D6 fields, with a revenue decline of 8.4% and a 12.7% decrease in core earnings due to higher maintenance costs.

Volatility from headlines: Jamnagar report denied

Reliance shares also fell sharply by over 3% in another episode driven by profit-taking and headline risk. The stock slid 2.93% to ₹1,531.90 by mid-morning on the BSE in that session. A report alleging tankers carrying Russian crude were headed to Reliance’s Jamnagar refinery added to caution, but Reliance denied the report, calling it “blatantly untrue.” The company said its Jamnagar refinery had not received Russian oil in three weeks and had no January deliveries scheduled. Such news flow can temporarily dominate price action even when underlying crack spreads are improving.

Key numbers to track

What the market is weighing now

For investors, the key question is whether elevated diesel cracks are a short spike or a sustained trend. The JM Financial framework ties a meaningful portion of near-term earnings upside to GRM improvement, which depends on product price strength relative to crude. But Reliance’s results have also shown that consumer-facing businesses like retail can influence near-term reactions when growth slows or margins compress. Meanwhile, headline-driven volatility, including geopolitics and refinery sourcing reports, can move the stock sharply in either direction. The next cues, as highlighted in market commentary, are global crude moves, crack spreads and developments around Middle East supply routes.

Conclusion

Reliance shares have weakened over the past month, but analysts see a near-term support in refining profitability if diesel cracks stay elevated. Investors will continue monitoring diesel crack spreads, GRM trends and segment performance across O2C, retail and telecom, along with Middle East risk signals.