Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Energy
India
Oil on the boil will make India toil. Ongoing social and political unrest in the MENA
region may keep crude oil prices high despite ample OPEC spare capacity (on paper)
and weakening global fundamentals. India faces a Hobson’s choice between (1) higher
subsidies and government borrowing and (2) higher inflation. In reality, we will see
both. We rule out a sustained improvement in refining margins given significant new
capacity additions and continued global over-supply
Crude prices: Predictions are meaningless in the current scenario
Crude oil prices may sustain at current high levels if social and political unrest in MENA sustains
and/or escalates further despite (1) ample OPEC spare capacity (on paper) and (2) nascent signs of
global tightening and slowdown in consumption of other commodities. OPEC’s spare capacity may
get strained if the ongoing social unrest in Libya escalates further and spreads to other oil-rich
countries in the MENA region.
Crude prices: Pain is for real for India; higher government borrowing and inflation
Given India’s social and political constraints and haphazard pricing system, we see limited passthrough of the increase in global oil prices to Indian consumers. Five state elections in 1QFY12E
and sticky inflation through 1HFY12E (even without considering higher fuel prices) may preclude
any meaningful price increase. (1) The government may have to ultimately borrow more, which
may push up interest rates in the system. (2) Periodic small price increases, if implemented,
through FY2012E may keep inflation above 7% through FY2012E.
Refining margins: Expectations seem to have run ahead of fundamentals
We expect supply-demand imbalance to remain through CY2011-12E as incremental global
refining capacity of 3.1 mn b/d and NGL supply of 1 mn b/d will likely exceed incremental demand
of 2.5-2.7 mn b/d over the same period. Refining margins have been strong of late given crude
price volatility and dislocations and low capacity utilization in the US; reported margins may also
benefit from adventitious gains in the short term.
Stock view: ONGC, OIL look good despite their limited upside to crude prices
ONGC and OIL have a moderately positive leverage to crude oil prices since they sell sufficient
crude oil and value-added products to offset the impact of higher subsidies under the current
subsidy-sharing system. Cairn has high leverage to crude oil prices but uncertainty on the royalty
issue may act as an overhang in the short term while normalized long-term crude oil prices of
US$80-90/bbl result in `290-`330 fair valuation for Cairn stock. RIL has little leverage to crude oil
prices. Earnings of BPCL, HPCL and IOCL are impossible to forecast without a proper pricing
system but the stocks seem to be discounting a rather bad situation in perpetuity
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Energy
India
Oil on the boil will make India toil. Ongoing social and political unrest in the MENA
region may keep crude oil prices high despite ample OPEC spare capacity (on paper)
and weakening global fundamentals. India faces a Hobson’s choice between (1) higher
subsidies and government borrowing and (2) higher inflation. In reality, we will see
both. We rule out a sustained improvement in refining margins given significant new
capacity additions and continued global over-supply
Crude prices: Predictions are meaningless in the current scenario
Crude oil prices may sustain at current high levels if social and political unrest in MENA sustains
and/or escalates further despite (1) ample OPEC spare capacity (on paper) and (2) nascent signs of
global tightening and slowdown in consumption of other commodities. OPEC’s spare capacity may
get strained if the ongoing social unrest in Libya escalates further and spreads to other oil-rich
countries in the MENA region.
Crude prices: Pain is for real for India; higher government borrowing and inflation
Given India’s social and political constraints and haphazard pricing system, we see limited passthrough of the increase in global oil prices to Indian consumers. Five state elections in 1QFY12E
and sticky inflation through 1HFY12E (even without considering higher fuel prices) may preclude
any meaningful price increase. (1) The government may have to ultimately borrow more, which
may push up interest rates in the system. (2) Periodic small price increases, if implemented,
through FY2012E may keep inflation above 7% through FY2012E.
Refining margins: Expectations seem to have run ahead of fundamentals
We expect supply-demand imbalance to remain through CY2011-12E as incremental global
refining capacity of 3.1 mn b/d and NGL supply of 1 mn b/d will likely exceed incremental demand
of 2.5-2.7 mn b/d over the same period. Refining margins have been strong of late given crude
price volatility and dislocations and low capacity utilization in the US; reported margins may also
benefit from adventitious gains in the short term.
Stock view: ONGC, OIL look good despite their limited upside to crude prices
ONGC and OIL have a moderately positive leverage to crude oil prices since they sell sufficient
crude oil and value-added products to offset the impact of higher subsidies under the current
subsidy-sharing system. Cairn has high leverage to crude oil prices but uncertainty on the royalty
issue may act as an overhang in the short term while normalized long-term crude oil prices of
US$80-90/bbl result in `290-`330 fair valuation for Cairn stock. RIL has little leverage to crude oil
prices. Earnings of BPCL, HPCL and IOCL are impossible to forecast without a proper pricing
system but the stocks seem to be discounting a rather bad situation in perpetuity
No comments:
Post a Comment