GASOLINE: The oil & gas monthly - March 2011 - Motilal Oswal

Understanding WTI -Brent differential

Brent crude rose 1.5x over past 12 months, to US$116/bbl, of which ~50% rise came over past two months, driven by unrest in MENA oil exporting countries.

The WTI-Brent price gap reached US$18/bbl led by bottlenecks in Cushing, Oklahama where WTI is traded.

Despite global refining overcapacity, margins were robust. February Singapore GRM was flat MoM at US$6.9/bbl.

Polymer spreads rose MoM. PE and PVC spreads were down 9% and up 7% YTD respectively. The price premium over imported polymers fell to 4-10% v/s 12-16% in FY10.

Strong oil prices are positive for pure oil plays like Cairn India but news flow on the Cairn-Vedanta deal will dictate near term stock price moves. Though OMC stock prices fell sharply, lack of clarity on subsidy sharing will be an overhang. After the BP deal we expect positive news on RIL's E&P business. Sustained refining and petchem performance are good for the stock. We are positive about ONGC due to its attractive valuation and robust earnings.

Source : Equity Bulls

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