With share prices up 42% and 25% (in US$) respectively over the last three months, PKN Orlen and Lotos have truly stood out among CEE oils. However, these strong share prices are hardly driven by fundamentals. Indeed, benchmark refining margins continued to slide this week and reached the lowest level in nearly six months. Looking at the monthly averages, margins are down almost US$ 5.0/bbl (or 47%) in November versus September (this trend should be confirmed by PKN’s margin update, due early next week). And here lies the crux of the matter. Brent remained broadly flat over the last three months, which makes the refiners’ overperformance versus upstream-geared peers even more surprising. To understand this conundrum we have to take a look at Polish pension fund flows. We calculate that total purchases of domestic pension funds probably hit more than PLN 2.0bn in October and November. While these flows may continue to support Polish equities for a while (possibly until the year-end), we believe share prices will not be able to defy the underlying fundamentals for long. Upside is capped by seasonal factors while downside is capped by rather low inventory levels, thus we expect refining margins to be range-bound during the winter period. This suggests that the earnings dynamics of refiners are likely to significantly lag those of producers unless there is a material and steep correction in crude quotations. Although our recommendation is unchanged on PKN Orlen (Hold), we would become a seller on further price strength (see our Monthly Investment Tips published on 26 November 2012 for other shortterm trading ideas). We rate Lotos a Sell.