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OIL & GAS INDUSTRY OVERVIEW
Key observations
Brent is trading at two years high.
We had opined in our last report (dated 05th Jan'11) that crude oil price will
cross over USD$100/bbls in the near future. As on 1st February 2011, Brent
crude oil price is trading over USD$100/bbls. We believe the key factors
supporting the bullish trend of oil prices are geo-political tension in Egypt,
US dollar depreciation, strong winter in US, improved economic sentiment
in Europe and better macroeconomic data from the US markets.
Egypt is not a major oil producer however its proximity to other oil-producing countries
is a major concern. Post the spread of unrest from Tunisia to Egypt, market is
skeptical of the same extending over to key oil producers such as Saudi Arabia.
However, we don't believe it will be extended. As per the data released by EIA, ~
1.8 Mn bopd of crude and products flowed through the Suez Canal in 2009. Also,
the Suez-Mediterranean pipeline transported about 1.1 Mn bopd of crude in 2009
can be impacted.
The World Bank in its latest forecast has upgraded its estimate of global gross domestic
product growth by 0.1 percentage point to 3.3% in 2011.
Brent is a light crude oil but WTI is lighter. Hence, WTI typically trades at a premium
to Brent, reflecting its superior, lower-sulfur composition and also the additional cost
of shipping crude to the US, until recently. However, we have observed that the
spread between Brent and WTI crude is continuously widening with Brent oil prices
trading at around a $10 premium to WTI due to delivery problems at Cushing, Oklahoma
for WTI. Cushing has few outlets to evacuate surplus oil.
With the increase in Brent crude oil price, the Indian crude oil basket has also increased.
We believe rising crude oil price and regulated retail fuel prices in India
(except petrol) will lead to major surge in under-recoveries for OMCs like IOCL,
BPCL and HPCL. Hence, we are bearish on all the OMCs.
We believe that the key beneficiary of rising crude oil price will be private sector
upstream exploration companies like Cairn India, Hindustan oil exploration and
Selan exploration.
Propane prices have increased: Sonatrach (Algeria's state-owned oil company)
has increased January propane prices by USD$50/MT to $975/MT. However, butane
has been decreased by $125/MT to USD$860/MT. India meets its domestic demand
by importing about 3 Mn MTPA of cooking gas. In Jan’11, LPG prices has fallen by
0.3% (MoM) to USD$926/ton.
Performance Analysis
In Jan'11, the average Brent crude oil price surged by 4.5% (MoM) to USD$97/bbls
as against an average of USD$92.9/bbls in Dec'10. The average Henry Hub Natural
gas price surged by 5.5% to an average of USD$4.5/mmbtu during the same period.
In Jan'11, the average spread between Brent and Dubai crude oil price surged by
46.3% (MoM) and 524% (YoY) to USD$4.2/bbls.
In Jan'11, the average Singapore refining margins surged by 18.1% (MoM) and
77.6% (YoY) to USD$6/bbls. We are bullish on refining margins going forward
mainly due to rising demand from developing economies. The key beneficiaries will
be RIL, MRPL and Essar oil.
Sensex v/s Oil and Gas sector performance analysis
In the last one month, Sensex and BSE Oil & Gas Index both have given a negative
return of -11.8% and -11.7% respectively. Several stocks in the oil and gas sector
like Shiv-vani oil and gas, OIL, RIL, Aban have fallen steeply in the last one month.
Only PLNG has given a positive return and Cairn India is the second best performer
in the sector. Oil marketing companies (IOCL, BPCL and HPCL) are struggling due to
rising under-recoveries on retail fuel oil sales.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OIL & GAS INDUSTRY OVERVIEW
Key observations
Brent is trading at two years high.
We had opined in our last report (dated 05th Jan'11) that crude oil price will
cross over USD$100/bbls in the near future. As on 1st February 2011, Brent
crude oil price is trading over USD$100/bbls. We believe the key factors
supporting the bullish trend of oil prices are geo-political tension in Egypt,
US dollar depreciation, strong winter in US, improved economic sentiment
in Europe and better macroeconomic data from the US markets.
Egypt is not a major oil producer however its proximity to other oil-producing countries
is a major concern. Post the spread of unrest from Tunisia to Egypt, market is
skeptical of the same extending over to key oil producers such as Saudi Arabia.
However, we don't believe it will be extended. As per the data released by EIA, ~
1.8 Mn bopd of crude and products flowed through the Suez Canal in 2009. Also,
the Suez-Mediterranean pipeline transported about 1.1 Mn bopd of crude in 2009
can be impacted.
The World Bank in its latest forecast has upgraded its estimate of global gross domestic
product growth by 0.1 percentage point to 3.3% in 2011.
Brent is a light crude oil but WTI is lighter. Hence, WTI typically trades at a premium
to Brent, reflecting its superior, lower-sulfur composition and also the additional cost
of shipping crude to the US, until recently. However, we have observed that the
spread between Brent and WTI crude is continuously widening with Brent oil prices
trading at around a $10 premium to WTI due to delivery problems at Cushing, Oklahoma
for WTI. Cushing has few outlets to evacuate surplus oil.
With the increase in Brent crude oil price, the Indian crude oil basket has also increased.
We believe rising crude oil price and regulated retail fuel prices in India
(except petrol) will lead to major surge in under-recoveries for OMCs like IOCL,
BPCL and HPCL. Hence, we are bearish on all the OMCs.
We believe that the key beneficiary of rising crude oil price will be private sector
upstream exploration companies like Cairn India, Hindustan oil exploration and
Selan exploration.
Propane prices have increased: Sonatrach (Algeria's state-owned oil company)
has increased January propane prices by USD$50/MT to $975/MT. However, butane
has been decreased by $125/MT to USD$860/MT. India meets its domestic demand
by importing about 3 Mn MTPA of cooking gas. In Jan’11, LPG prices has fallen by
0.3% (MoM) to USD$926/ton.
Performance Analysis
In Jan'11, the average Brent crude oil price surged by 4.5% (MoM) to USD$97/bbls
as against an average of USD$92.9/bbls in Dec'10. The average Henry Hub Natural
gas price surged by 5.5% to an average of USD$4.5/mmbtu during the same period.
In Jan'11, the average spread between Brent and Dubai crude oil price surged by
46.3% (MoM) and 524% (YoY) to USD$4.2/bbls.
In Jan'11, the average Singapore refining margins surged by 18.1% (MoM) and
77.6% (YoY) to USD$6/bbls. We are bullish on refining margins going forward
mainly due to rising demand from developing economies. The key beneficiaries will
be RIL, MRPL and Essar oil.
Sensex v/s Oil and Gas sector performance analysis
In the last one month, Sensex and BSE Oil & Gas Index both have given a negative
return of -11.8% and -11.7% respectively. Several stocks in the oil and gas sector
like Shiv-vani oil and gas, OIL, RIL, Aban have fallen steeply in the last one month.
Only PLNG has given a positive return and Cairn India is the second best performer
in the sector. Oil marketing companies (IOCL, BPCL and HPCL) are struggling due to
rising under-recoveries on retail fuel oil sales.
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