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Natural gas: Prices inching up

Anand Rathi | 17 Jun, 2010  | Follow Author | Add to my Favourites 
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-Natural gas (Henry Hub) prices rising? Natural gas prices averaged US$4.7/m Btu for the first fortnight of Jun, crossing US$5 for the first time since Feb. Though the fortnightly trend differed from the flat and lower prices seen for some time, the trend should be more clear in coming weeks. We expect prices to be low as supplies continue to rise amidst lower demand.

-Auto-fuel losses rise as crude climbs. Based on average international gasoil and gasoline prices for 1-15 June, under-recoveries for the 16-30 June fortnight would be Rs3.8 a litre, compared to Rs3.2 earlier. The greater losses would primarily be due to higher product prices and rupee depreciation.

-Light-Heavy spread rises; product margins fall. For the 1-15 June fortnight, product margins were lower than in the previous fortnight. The Light-Heavy difference slightly widened.

-Refining margins fall again. Refining margins averaged US$3.4/ bbl for the first fortnight of June, about US$0.5/bbl lower than the previous fortnight. Although rising recently, margins continue to be lower than the previous quarter’s US$5/bbl average. They now (in 1QFY11) average about US$3.6/bbl. We expect refining margins to rise slightly in FY11 – from FY10’s average US$3.5 to US$4/bbl.

-Crude break-even prices lower, as rupee weakens. We estimate breakeven crude prices at US$63/bbl for auto fuels and US$27.6 for cooking fuels. The rupee depreciation has further lowered the breakeven price levels of crude.

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