UBS keeps Buy on Viva as Middle East tensions lift refining margins Proactive uses images sourced from Shutterstock
UBS has reaffirmed its Buy recommendation on Viva Energy, arguing that the conflict in the Middle East is supporting stronger oil refining margins and could flow through to improved earnings from the company’s Geelong refinery if conditions hold.
In a note to clients, the bank pointed to a sharp uplift in Asian margins for converting crude into refined fuels, with gains most evident in jet fuel and diesel. UBS said that, should the higher margin environment persist, Viva’s refinery would be positioned to benefit through stronger gross earnings from refining.
UBS does not expect an outright physical shortage of crude oil or refined fuels, provided shipping through the Strait of Hormuz normalises within 1 month. While Viva sources less than 10% of its crude from the Middle East, it imports sizeable volumes of refined fuels from Asia, leaving the company exposed to regional margin moves.
On UBS estimates, Viva’s Geelong refining margin could lift to around US$10.70 per barrel in March, which the bank said is about 14% above current market consensus. If achieved, UBS estimates this could add roughly $20 million to Viva’s gross refining earnings across the March quarter.
UBS also flagged a potential domestic catalyst: the federal government’s review of refining subsidy payments, which is due to be finalised this month. The outcome could influence investor sentiment toward local refining economics and, in turn, Viva’s share price.
UBS has set a 12-month price target of $2.40 on Viva shares. The stock last closed at $2.07.