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OIL & GAS INDUSTRY OVERVIEW
Key observations
Brent crude oil price is currently trading at USD$112/bbls after a correction
of USD$13/bbls from 1st May’11 due to weakening U.S. macroeconomic data
(including U.S. weekly jobless claims hit eight-month high), concerns over
further monetary tightening in China which can lower the demand for oil,
euro zone debt fears, unexpected fell in the German industrial orders and
dollar appreciation. We believe Brent crude price will trade in a range of
USD110-125/bbls till the time geo-political issue in oil producing countries
settles down.
In April’11, natural gas prices increased by 6.6% (MoM) to average USD$4.24/
mmbtu but we expect going forward it can correct as the nuclear electricity generating
capacity has recovered and temperature is also moderate which will lower the
demand for natural gas.
Singapore refining margins has improved marginally by 3.7% (MoM) to average
USD$7.4/bbls in April’11 mainly due to increase in gasoline and gasoil prices. This
will benefit RIL and Essar Oil.
We believe the key factors to monitor are US economic growth, demand from EM
like China and India and Monetary policy action by China (2nd largest crude oil
consumer) and India (fourth largest).
WTI and Brent spread was at USD$14.4/bbls resulting in U.S. Gulf oil grades
strengthening. We expect the spread to sustain till the inventory at Cushing reduces
significantly. When Brent gains versus WTI, it strengthens the value of low-sulfur U.S.
grades that compete with West African oil priced against the European grade. Rising
spread is negative for India as Indian crude oil basket consists of Brent crude.
The government is planning to increase diesel price and in this regard an empowered
group of ministers led by finance minister Pranab Mukherjee will meet on May
11. We expect the diesel price hike will be of Rs.3/ltrs and marginal increase in
Kerosene prices. This will lower the under-recoveries and will be positive for HPCL,
BPCL and IOCL.
In March’11, the Indian refinery utilization has increased by 1.5% (MoM) and 3.4%
(YoY) to 113.7%. We expect the refinery utilization will remain high due to high
demand of petroleum products from Japan and other countries. BPCL had commissioned
its 6 Mn MTPA Bina refinery in Jan’11 and is planning for creeping expansion
to 9 Mn MTPA and later to 15 Mn MTPA.
Sensex v/s Oil and Gas sector performance analysis
In the last one month, Sensex had given a return of -7.3% whereas Bse Oil and Gas
Index had given -4.3% returns. In April’11, HPCL had given the highest return of
12.7% on expectation of retail fuel price hike by government in May’11 followed by
BPCL and IOCL with a return of 9.7% & 8.3% respectively, IGL had 6.3% return and
ONGC 5.9%. Worst performer was Ageis Logistic with -11.08% return.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OIL & GAS INDUSTRY OVERVIEW
Key observations
Brent crude oil price is currently trading at USD$112/bbls after a correction
of USD$13/bbls from 1st May’11 due to weakening U.S. macroeconomic data
(including U.S. weekly jobless claims hit eight-month high), concerns over
further monetary tightening in China which can lower the demand for oil,
euro zone debt fears, unexpected fell in the German industrial orders and
dollar appreciation. We believe Brent crude price will trade in a range of
USD110-125/bbls till the time geo-political issue in oil producing countries
settles down.
In April’11, natural gas prices increased by 6.6% (MoM) to average USD$4.24/
mmbtu but we expect going forward it can correct as the nuclear electricity generating
capacity has recovered and temperature is also moderate which will lower the
demand for natural gas.
Singapore refining margins has improved marginally by 3.7% (MoM) to average
USD$7.4/bbls in April’11 mainly due to increase in gasoline and gasoil prices. This
will benefit RIL and Essar Oil.
We believe the key factors to monitor are US economic growth, demand from EM
like China and India and Monetary policy action by China (2nd largest crude oil
consumer) and India (fourth largest).
WTI and Brent spread was at USD$14.4/bbls resulting in U.S. Gulf oil grades
strengthening. We expect the spread to sustain till the inventory at Cushing reduces
significantly. When Brent gains versus WTI, it strengthens the value of low-sulfur U.S.
grades that compete with West African oil priced against the European grade. Rising
spread is negative for India as Indian crude oil basket consists of Brent crude.
The government is planning to increase diesel price and in this regard an empowered
group of ministers led by finance minister Pranab Mukherjee will meet on May
11. We expect the diesel price hike will be of Rs.3/ltrs and marginal increase in
Kerosene prices. This will lower the under-recoveries and will be positive for HPCL,
BPCL and IOCL.
In March’11, the Indian refinery utilization has increased by 1.5% (MoM) and 3.4%
(YoY) to 113.7%. We expect the refinery utilization will remain high due to high
demand of petroleum products from Japan and other countries. BPCL had commissioned
its 6 Mn MTPA Bina refinery in Jan’11 and is planning for creeping expansion
to 9 Mn MTPA and later to 15 Mn MTPA.
Sensex v/s Oil and Gas sector performance analysis
In the last one month, Sensex had given a return of -7.3% whereas Bse Oil and Gas
Index had given -4.3% returns. In April’11, HPCL had given the highest return of
12.7% on expectation of retail fuel price hike by government in May’11 followed by
BPCL and IOCL with a return of 9.7% & 8.3% respectively, IGL had 6.3% return and
ONGC 5.9%. Worst performer was Ageis Logistic with -11.08% return.
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