Oil Stocks Outlook for the week – 08 to 11.03.2016 Seen trade in a range next week with a negative bias

Oil Stocks Outlook for the week – 08 to 11.03.2016

Stocks of public sector oil refining and marketing companies are likely to trade in a
range next week with a negative bias. The trend will be primarily dictated by news
flow, broad market sentiment, and global crude oil prices.

Stocks of the three state-owned refiners--Indian Oil Corp Ltd, Bharat Petroleum Corp
Ltd and Hindustan Petroleum Corp Ltd--are seen weakening in the near term, as
refining margins have started coming off historic highs seen in the last quarter, and
the first half of the current one.

Also, with winter demand waning and new refining capacities coming up in Asia, the
outlook for gross refining margins has turned bearish. This is likely to put some
pressure on stocks of refiners.

Stocks of upstream as well as downstream companies will continue to track global
crude oil prices, which have been volatile the past couple of months but are
witnessing an uptick now.

Global crude oil prices have shown some recovery over the past couple of weeks,
which will work in favour of upstream stocks - Oil and Natural Gas Corp Ltd, Oil
India Ltd and Cairn India Ltd. The Indian basket of crude oil has hovered around $33
per barrel this week. Through most of last week, the basket was at $31-32 a barrel.
Even though the US has very large volume of crude oil inventories, it has recently
reported lowest levels of crude output since November 2014, lending some optimism
to possibilities of a recovery in prices. The higher crude oil prices would put some
pressure on the margins of oil marketing companies in the near term.

ONGC and Hindustan Petroleum are likely to announce their second interim dividend
next week. This is being seen as a positive for the two scrips as some buying activity
is likely ahead of the dividend announcement.

Investors will also be on the lookout for any announcement by oil producing nations
with regard to crude production levels. Major oil producers have been in talks to deal
with the severe glut in the global oil market. Fluctuations in the dollar-rupe exchange
rate is also likely to affect downstream as well as upstream stocks.