Crude oil hit a six-month high of nearly US$ 120/bbl after the state-run Mehr news agency reported that the country had stopped crude exports to France and the Netherlands and threatened to end shipments to four other European countries. The report was initially denied by the Ministry of Oil in Tehran, which later said it could neither confirm nor deny the news.
We see two major implications for CEE oils. First, companies may have to adjust to an even higher crude oil price environment. This is clearly positive for upstream-geared names (Petrom, OMV, MOL) and negative for refiners and petrochemicals (Lotos, , Unipetrol) due to high feedstock price pressure. Second, the Brent-Urals differential is likely to further narrow, exacerbating the current weakness of refining profitability. While the partial loss of Iranian crude supplies would send Brent soaring, it would arguably have a greater impact on direct competitors such as Urals. All told, the imminent risk of another crude oil supply shock reinforces our strong preference for integrateds over refiners. Another piece of negative news for European refiners yesterday was that Coryton, one of Petroplus’s largest refineries, which had been running at half capacity since December 2011, signed an oil-supply deal with MSCG, KKR AM and AtlasInvest that will keep the refinery going for at least another three months, prolonging thereby the restoration of European refining industry’s supply/demand balance.