Oil Stocks Outlook for the week – 08 to 12.12.2014

Oil Stocks Outlook for the week – 08 to 12.12.2014

Stocks of state-owned oil marketing companies are seen range bound next week and will mostly
track crude oil prices and the dollar-rupee movement amid lack of other triggers. However seen
some upside in Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp
Ltd stocks from the current levels if crude prices stabilize at current levels.

Sustained decline in price of crude oil has had investors worried as the three companies were
piling up inventory losses. Usually, these companies have crude inventory levels of 40-45 days.
Since these companies are always selling oil products at prices lower than they are buying, they
are not able to make much money and most gains due to the deregulation of diesel are being
wiped out.

Further, the government has hiked excise duty on petrol and diesel two times in less than a
month, indicating that the profitability of these companies will remain capped in the near term
and they may not see much expansion in marketing margins.

While this is likely to be a sentiment negative, we believe OMC (oil marketing companies)
performance could continue to be supported by commodity prices remaining soft. Meanwhile,
cash-rich Reliance Industries Ltd is planning a big bang re-launch of its fuel retailing operations
in less than a month with likely massive discounts to large industrial buyers of diesel and

This could weigh on sentiment for investors in BPCL, IOC, and HPCL, as RIL is likely to be an
aggressive competitor and may take away their market share. On the positive side, the Indian
currency pulled back a little this week from a nine-month low it had hit last week. Also, crude oil
prices have continued to decline. The Indian basket of crude hit $67.98 a barrel on Thursday
from $70.29 at the end of last week. Stable crude at lower prices would be seen as a positive for  the financial health of oil marketing companies.