>REFINING MARGINS - UNDER PRESSURE (INDIA INFOLINE)

Refining margins remained weak for most part of 2009, primarily driven by global economic slowdown. IEA expects oil demand primarily driven by global economic slowdown in 2009, to about 83.8mbpd down 3% yoy, fastest decline since the early 1980s. The decline has happened at the time when refininf capacities hace increased substantially, especially so in Asia. With countries such as India, fast emerging as an export hub, and Cina aiming to increase its domestic capacity utilization, a supply glut is inevitable. Falling heavy-light and sour-sweet spreads have further impacted complex refiners. We believe, the downturn in the sector would extend in the sector would extend to early part of 2010 before any meningful bounce back. Till then the valuations of pure refining companies should continue to reel under pressure. Nevertheless CPCL remains our top pick in the sector.

• Near term demand outlook remains weak
• Supply glut inevitable
• Valuations to remain under stress

To see full report: REFINING SECTOR