Lotos signed a contract to buy 1MMbbl of crude oil from the state-owned firm Kuwait Petroleum Corporation (KPC), the Polish company said in its statement on Tuesday. The first sea-side delivery is due to reach the port of Gdansk in the middle of October. No further details of the deal were revealed.
Our view: As we already mentioned last week, it is hard to justify Lotos' decision to change for other crude oil supply sources now and not in 2-3 years time when additional amount would be needed to the planned capacity expansion. While replacing Urals type by more expensive Kuwaiti crude the company would feel pressure on its margins. However due to its superior quality the Kuwaiti crude would likely improve product slate of the Gdansk refinery and thus would help to avoid margin realization problems in the winter through lesser heating oil yield. We reiterate our Buy recommendation with a price target of PLN 60.7.