Woes of oil supplies arising from Iran-west standoff have created a bull run in the oil market with benchmark crude oil prices, WTI and Brent, rallying 11 per cent and 18 per cent in 2012YTD to currently hover around $109 and $127 per barrel, respectively. The bull sentiment has eclipsed the previously held demand worries, while majority of the international oil analyst also expect the oil prices to remain elevated in 2012, said a research report of Topline Securities. Following the similar trend, Arab Light price, benchmark for Pakistan, has also surged by 16 per cent in 2012YTD to stand around $126 per barrel, currently.
Given this scenario, we are revising our FY12 oil price assumption to $110 per barrel, previously from $100 per barrel, which has subsequently increased our E&P universe earnings by an average 3 per cent for FY12. Geopolitical tension arising from west, possible sanctions against Iran and its impact on the oil supply scenario has created frenzy in the oil markets, which has also turned majority of the international research houses bullish on the crude prices at least for 2012. Pakistan relevant, Arab Light prices are currently trading above the level of $125 per barrel, which have averaged $110 per barrel in FY12 so far.
With four months remaining in FY12, we believe our previously oil assumption of $100 per barrel has turned out to be on the lower side and we are revising our FY12 oil assumption to $110 per barrel. However, given the prevalent uncertainty on the economic front, we have kept our long-term oil price assumption unchanged at $95 per barrel. Increase in the oil prices assumption would positively impact the E&P sector profitability.
