Oil Stocks Outlook for the week – 25 to 28.08.2014

Oil Stocks Outlook for the week – 25 to 28.08.2014

The good run may continue for the state-owned oil marketing companies next week as
the Indian currency is seen stable around current levels while crude oil prices may
continue to fall in the near term.

Stocks of Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum
Corp Ltd may rise more in the next few sessions after registering significant gains this
week if the fall in crude prices continue. On the other hand, Reliance Industries shares are
seen muted next week because of weakening refining scenario.

Crude oil prices have unusually weakened over the last few months despite rising
geopolitical tensions in the west Asia and Ukraine. We believe that recent developments
indicate further negative implications in the near term for Brent crude prices. The Indian
crude oil basket closely tracks Brent crude.

Any further decline in crude oil prices will be significantly positive for the three refiners
as it would reduce their losses on subsidised fuel and may even lead to deregulation of
diesel much before expected.

In order to capitalise on our negative outlook on Brent crude, we would like to place
positional long trades in the oil marketing companies. Also, the rupee gained more than
20 paise yesterday to end at 60.46 to a dollar.We expect the rupee to trade between
60.20-60.70 levels. Adding that month-end demand from importers, mostly oil
companies, could limit the appreciation.

For Reliance Industries though, the near-term trend is negative as the refining margins
have weakened in the past few weeks.

The benchmark Singapore complex gross refining margin dropped below $3 a barrel in
the first half of this month due to good run rate of refineries globally amid muted

The government is likely to decide next week on how it plans to revise price
of gas produced domestically. The pricing formula proposed by the Rangarajan panel,
which was to be implemented from Apr 1, was deferred by the government. It later said

that a new mechanism for gas pricing will be announced by Sep 30