Mazeikiu said on Wednesday that it had received in September crude oil supplies from Venezuela for the first time. Head of IR Mr. Karsokas told Reuters that if needed there would be further purchases of Venezuelan crude. In August Mazeikiu received a total of 807,000 tonnes of crude he added.
Our view:
Recent purchase of 70,000 tonnes of Venezuelan Mesa-30 covers about 10% of monthly crude demand for Mazeikiu. According to our calculation the Venezuelan crude could be bought with US$ 2-3/bbl premium over the Urals (shipping costs included). This confirms our concerns that the supply alternative to the Druzhba pipeline might half the profits of the Lithuanian refinery. We originally expected 2006 effective refining margin of Mazeikiu at US$ 4.5/bbl, but switching of crude supplies on the back of the closure of the Druzba pipeline in July might cut effective margin to US$ 2-3/bbl in 2H06. Also, it looks that the August supply of 807,000 tonnes was just enough to cover the Mazeikiu's demand, thus no stockpiling took place ahead of the September shutdown of the Butinge terminal. This indicates a substantially lower capacity utilization rate for September than in 1H06 (some 90% when calculating with the deep processing capacity of 10mtpa). This could put further pressure on the margins in 3Q06, in our view. However, we think the market has already priced in the story, thus we do not expect major reaction to the news.