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UBS Investment Research
Asia Oil Explorer
D ownstream margins hanging on
Refining margins flat WoW; petchem spreads rise
Despite weak global sentiment, the Reuters Singapore complex refining margin
index averaged a high US$10.4/bbl last week, down from an average US$10.5/bbl
the previous week. The index has been boosted by strong gasoline spreads near
US$18.3/bbl while fuel oil spreads rose unexpectedly above US$10/bbl.
Meanwhile diesel spreads fell US$0.7/bbl to US$17.2/bbl. PX-naphtha spreads
rose 13.8% WoW to close at US$735/t. The HDPE spread of US$475/t is up from
the May level of below US$300/t.
US crude stocks rise unexpectedly
The WTI crude oil price fell 3.7%, ending last week at US$82.3/bbl, while Brent
price rose 2.0% to US$109.5/bbl. Brent's premium to WTI touched a record
US$27.3/bbl. WTI fell on renewed fears that the US may slide into recession.
According to the US Department of Energy (DOE), for the week ended 12 August,
crude inventories rose 4.2mbbls versus Reuters’ consensus of 0.8mbbls draw. Rise
in imports and release from strategic petroleum reserves pushed crude stock higher.
Oil and chemical stocks have declined in the past month
For the month ended 19 August and based on simple average performance,
integrated stocks in Asia under UBS coverage fell 17.8%, while, on an average,
E&P and refining stocks fell 10.9% and 13.0%, respectively.
Top picks
Our most preferred stocks in Asia are Sinopec, PTT Chemical, Reliance Industries,
and SK Innovation.
Statement of Risk
We believe oil prices are the top risk in the sector. Our valuation of oil
companies is based on UBS’s global crude oil price forecasts. UBS forecasts
Brent crude oil prices of US$103.8/bbl in 2011 and US$95/bbl in 2012. We
have a normalised long-term Brent oil price assumption of US$95/bbl. Any
deviation from the above forecasts could change our investment conclusions.
Petrochemical plants are generally high-risk operations (particularly during new
plant start-ups), and accidents could significantly reduce plant operating rates,
leading to lower-than-expected earnings. Exploration and production activities
face risks such as volatility in oil and natural gas prices, and operational,
financial, geological and meteorological issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Oil Explorer
D ownstream margins hanging on
Refining margins flat WoW; petchem spreads rise
Despite weak global sentiment, the Reuters Singapore complex refining margin
index averaged a high US$10.4/bbl last week, down from an average US$10.5/bbl
the previous week. The index has been boosted by strong gasoline spreads near
US$18.3/bbl while fuel oil spreads rose unexpectedly above US$10/bbl.
Meanwhile diesel spreads fell US$0.7/bbl to US$17.2/bbl. PX-naphtha spreads
rose 13.8% WoW to close at US$735/t. The HDPE spread of US$475/t is up from
the May level of below US$300/t.
US crude stocks rise unexpectedly
The WTI crude oil price fell 3.7%, ending last week at US$82.3/bbl, while Brent
price rose 2.0% to US$109.5/bbl. Brent's premium to WTI touched a record
US$27.3/bbl. WTI fell on renewed fears that the US may slide into recession.
According to the US Department of Energy (DOE), for the week ended 12 August,
crude inventories rose 4.2mbbls versus Reuters’ consensus of 0.8mbbls draw. Rise
in imports and release from strategic petroleum reserves pushed crude stock higher.
Oil and chemical stocks have declined in the past month
For the month ended 19 August and based on simple average performance,
integrated stocks in Asia under UBS coverage fell 17.8%, while, on an average,
E&P and refining stocks fell 10.9% and 13.0%, respectively.
Top picks
Our most preferred stocks in Asia are Sinopec, PTT Chemical, Reliance Industries,
and SK Innovation.
Statement of Risk
We believe oil prices are the top risk in the sector. Our valuation of oil
companies is based on UBS’s global crude oil price forecasts. UBS forecasts
Brent crude oil prices of US$103.8/bbl in 2011 and US$95/bbl in 2012. We
have a normalised long-term Brent oil price assumption of US$95/bbl. Any
deviation from the above forecasts could change our investment conclusions.
Petrochemical plants are generally high-risk operations (particularly during new
plant start-ups), and accidents could significantly reduce plant operating rates,
leading to lower-than-expected earnings. Exploration and production activities
face risks such as volatility in oil and natural gas prices, and operational,
financial, geological and meteorological issues.
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