Oil Stocks Outlook for the week – 21 to 25.03.2016 PSU oil companies seen positive on crude price recovery

Oil Stocks Outlook for the week – 21 to 25.03.2016
PSU oil companies seen positive on crude price recovery

Stocks of public sector oil companies, both downstream and upstream, are likely to trade in a range
with a positive bias next week, following an uptick in global crude oil prices. Those apart, no major
triggers for oil sector stocks are seen in the immediate term. Other factors likely to lend direction to
the movement of these stocks news flow and the broader market sentiment.

Crude oil prices have staged a recovery through the past four weeks, helping exploration and
production companies. Recently, the International Energy Agency had said there are signs that oil
prices may have finally bottomed out and are now stabilising. They may even begin to rise again, it
had added. Such forecasts are likely to further strengthen prices.

Crude oil futures on the Multi Commodity Exchange of India and the New York Mercantile Exchange yesterday rose to the highest levels this year on hopes of a freeze in output by major producers, which could bring stability to the oil markets.

Crude oil futures on NYMEX surged to $41.93 a bbl earlier last day after confirmation of a meeting of around 15 major oil-producing nations in Doha on Apr 17. Though Iran has said it will not join any accord to limit its output, market participants have ignored the setback and are hopeful that a deal could help reduce the glut and stabilise prices.

The Indian crude oil basket rose to $38.05 a barrel by the end of the week, up from $37.01 a barrel at
the end of the previous week. If oil prices continue to improve, companies such as ONGC, Oil India
Ltd and Cairn India Ltd are set to gain.
Even as an uptick in crude oil prices is seen putting pressure on the margins of oil refining companies, in the current environment, these entities, too, are likely to benefit from the rise. Shares of state-owned retailers Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd may react positively on expectations of inventory gains due to the recent crude price recovery.

Apart from that, it said that a recovery in oil prices at this stage will lead to a stable refining demandsupply balance and prevent super-normal marketing margins, which are unsustainable in the long run. Fluctuations in the dollar-rupee exchange rates are also likely to affect downstream and upstream oil companies' stocks. If the dollar strengthens against the rupee, it will hit refining companies, while benefiting upstream players. A weaker dollar, on the other hand, will help downstream companies, as India primarily relies on imported crude oil to meet its requirements.