Goldman Sachs-Reliance Petroleum Downgraded To Sell, Imputed Value o

Goldman Sachs-Reliance Petroleum Downgraded To Sell
Imputed Value of Reliance Petroleum in the Reliance Industries stock
consequently goes down. Expect Reliance to sink below Rs 2000 shortly.

New RPL supply to keep gasoline spreads weak; cut 09E-10E GRM; downgrade RPL,
Formosa Petrochemical to Sell

RPL's new refinery to have impact on refining margins.We believe that Reliance
Petroleum's (RPL) new 580Kpbd refinery, representing almost 50% of our estimate
of global oil demand
growth in 2009, is likely to have ramifications for refining margins globally,
particularly for gasoline spreads, when it comes on stream in 4Q2008E.

We estimate that RPL will produce almost 400 - 500 Kbpd of gasoline and
diesel, which will be entirely exported out, in our view.

Divergence between weak gasoline spreads, stable diesel spreads.Incremental
supply from RPL amid weak gasoline demand growth in the key US market and
tighter ethanol blending norms are likely to keep gasoline spreads weak over
medium term, in our view. However, we
believe middle distillate spreads are likely to remain robust, driven by strong
demand from transportation and industrial growth in Asia and Middle East and
steady demand from Europe, thereby absorbing RPL's diesel exports.

Fuel oil spreads are likely to remain weak, in our view.

Hence, we believe that US refiners with high gasoline exposure are likely to be
more adversely impacted than most of the European and Asian refiners with high
diesel yields. However, gasoline exports of some of the European refiners to the
US may be displaced by RPL's gasoline. The simple refineries with high fuel oil
yields are also likely to suffer across
geographies due to weak fuel oil spreads, in our opinion.

Reducing refinery margin and gasoline spread forecasts.We lower our Singapore
complex refining margin forecasts for 2009E and 2010E by US$2.0/bbl and
US$2.5/bbl, respectively, to US$8/bbl in each year and downgrade our Asian
refining sector view to neutral from attractive.

This is in line with our outlook for the US refiners. We also cut simple
margins for 2009E and 2010E to US$0.3/bbl in each year from US$2.0/bbl and
US$2.5/bbl, respectively. As a
result, we lower 2009E EPS of refining stocks under coverage by 5%-35% and their
12-mo. target prices by 1%-22%.

Key risks:

1) rebound in gasoline spreads owing to strong US demand;
2) economic recession leading to negative oil demand; and
3) pricing reforms in India, China.

Nothing in this article is, or should be construed as, investment advice.

Rohit