LAHORE - Decline in international crude oil prices will have minimal impact on OMCs earnings with higher share of regulated products in their overall sales mix. On the other hand, it would adversely impact margins of PSO. Besides this, OMCs may also incur inventory losses especially on HSD and furnace oil depending upon their storage levels. Nauman Khan, an energy expert said that on the other hand, the decline in oil prices, would improve cash generation capability (particularly for PSO) as this would reduce accumulation of circular debt. The rising uncertainty of global economic health has forced the international crude oil benchmark prices to currently stand around US$85 per barrel, down from recent high of US$113 per barrel (May 02, 2011). On the other hand, Arab Light prices (relevant to Pakistan) has also eased to recent high of US$126 per barrel (April 29, 2011), but are still hovering above US$100 per barrel which is still above our base case oil assumption of US$96 per barrel in FY12. Assuming constant middle distillate crack spreads, US$10 per barrel change in international crude oil prices, would reduce ATRLs and NRLs annualize earning by Rs2 (6 percent) and Rs3 per share (3 percent). However, on account of strong cash flow position and auxiliary source of income, we maintain positive stance on the both NRL and ATRL at current levels. Experts have kept oil price assumption intact but have conduct earning/Target price sensitivity assuming various price levels with worst case scenario at US$80 per barrel (Arab Light). Even in a worst case scenario, they continue to maintain a positive outlook on our preferred plays in the oil chain i.e. Pakistan Oilfields Limited (POL) and Pakistan Petroleum Limited (PPL), which are trading at implied oil prices of US$69 and US$54 per barrel. Experts estimate PPL to be the least affected on account of higher proportion of gas in its revenue mix as gas prices are set bi-annually. Thus, any change in oil prices will be immaterial for 1HFY12 and that is why PPL earnings would likely to grow by 26 percent even if oil prices fell to US$80 per barrel. On the other hand, Pakistan Oilfields (POL) will be the most effected on account of revenue mix skewed towards oil.