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Published on March 14, 2008

Securities houses have kept a "buy" recommendation on Thai Oil, as the refinery's outlook remains positive, buoyed by rising crude prices.

The National Energy Board approved a proposal on Wednesday to cut the retail price of diesel 40 satang with immediate effect and a further 50 satang as soon as Cabinet approval is obtained, which can be as soon as today.

The subsidised price will last up to July.

Citigroup said in a report that the subsidy would be financed from fuel funds. Consumers have had to pay a total of 85 satang a litre, with 10 satang going to the Oil Fund and 75 satang to the Conservation Fund.

With the subsidy, the Oil Fund charge will be temporarily suspended, while the Conservation Fund charge will be reduced 50 satang a litre. The remaining 30 satang a litre will be taken from the Oil Reserve Fund.

According to the research, refiners such as Thai Oil base their prices on regional import parity. The ex-refinery price is calculated from the Singapore spot market price plus transportation cost to Thailand, import duties, ocean losses and quality premiums.

The excise duty and local funds contributions are directly passed on to end-users.

BT Securities said in its latest report that it was a good time to fill up on Thai Oil stock, as it is trading at a low price.

The brokerage forecasts that Thai Oil should report good results for the first and second quarters on larger production capacity and higher refining margin.

Thai Oil has expanded its refining capacity by 50,000 barrels to 275,000 per day. Though its refining margin in the first quarter is not high, standing at US$6.80 (Bt215) per barrel, the company will benefit from its oil inventory as a result of rising crude prices.

"If the crude-oil prices are steady at $100 per barrel till the end of March, Thai Oil is expected to gain at least $5-$6 per barrel, resulting in the refining margin jumping to $12 to $13 a barrel," BT Securities said.

The brokerage estimates Thai Oil's 2008 net profit rising 11 per cent to Bt21.26 billion, mostly from capacity expansion of both the refinery and petrochemical businesses.

Thai Oil shares yesterday closed down 0.68 per cent at Bt72.50.

The Nation