PKN’s model refining margin narrowed to US$ 1.4/bbl in June from US$ 2.4/bbl in May, while the difference in price between the Urals crude it refines and Brent shrank to US$ 2.3/bbl from US$ 2.60/bbl.
The company last week released its model refining margin for 2Q11 which suggested the weak margin capture in June. Therefore, we expect muted market reaction to the news. We reiterate our view that these developments are slightly negative. Weaker margin realization runs contrary to our expectations as we anticipated that the improving diesel and heating oil cracks, together with the unchanged PLN against the US$, would offset the falling gasoline cracks. The m/m narrowing Ural-Brent differential shows some signs of normalization but does not bode well for the overall picture.