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Crude Oil – Short Term Weakness – Kotak

March 3, 2010

Kotak sec expects weakness in crude oil. There will be likely subdued demand on account of seasonality in 2QCY10, low OPEC compliance and high inventories. However, we do not rule out continued high levels of speculative trading.

In the medium term, given large spare OPEC capacity of ~6 mn b/d over CY2010-11E, significant oil discoveries announced in new areas, increase in OPEC supply, particularly in Iraq, to mitigate the impact of lower non-OPEC supply, abundant supply of alternative cheaper fuel in the form of natural gas and potential curb on speculative activity.

However, in long-term, normalized crude price of US$80/bbl given comfortable demand-supply balance over the next 2-3 years and
economics of marginal oil production. We have been recommending to AVOID investors from all Downstream Companies or Oil Marketing Companies – BPCL, HPCL and IOC.

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