Oil Stocks Outlook for the week – 09 to 13.05.2016 PSU refiners seen in range; crude price in focus

Oil Stocks Outlook for the week – 09 to 13.05.2016
PSU refiners seen in range; crude price in focus

Stocks of public sector oil refining companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and
Hindustan Petroleum Corp Ltd are seen trading in a range next week in the absence of any major
sector-specific triggers. Stocks of oil companies are likely to be in tune with the broader market and
would be tracking global crude oil prices and news developments pertaining to the sector. Refining
companies currently have strong fundamentals and positivity around them on expectations of
favourable Jan-Mar earnings, backed by inventory gains and robust refining margins.

Some market participants believe that any weakness in the immediate term in downstream stocks
should be considered a buying opportunity. Prices of crude oil have seen gradual improvement over
the past few weeks but there has not been any sharp spike. Despite an uptick in prices of crude oil
being a negative for oil-refining companies' margins, in the current environment, these entities too
have benefited from the rise.

Stocks of the three state-owned fuel retailers have been reacting positively on expectations of
inventory gains as prices have inched up. Prices of crude oil are largely seen stabilising after some
upward movement in the near-to-medium term, and a steep rise seems unlikely. As far as upstream
players like Oil and Natural Gas Corp Ltd, Oil India Ltd, and Cairn India Ltd are concerned, these
stocks are likely to trade in a narrow range, and their movement will be decided by global prices of
crude oil.

However, fundamentals for upstream companies continue to be weak as oil prices continue to be
subdued. Outlook for crude oil prices for the coming week is not very positive. After climbing for four straight weeks because of a decline in production from Venezuela, Libya, and Canada, oil prices failed to sustain above $45-a-bbl as most of the interruptions to production seem temporary.

Rising output from the Organization of the Petroleum Exporting Countries and the likelihood of
increased production in the US may weigh on prices. Even as oil prices gained mostly because of a
fall in US oil output, rising inventories and speculation that shale oil producers might ramp-up output
if prices rise above $45 per bbl may pull down prices. Apart from that, focus of domestic equity
markets will now be on corporate earnings for Jan-Mar, which is likely to shape sentiment in the
broad market.

Fluctuations in the dollar-rupee exchange rate are also likely to affect the stocks of downstream and
upstream oil companies. If the dollar strengthens against the rupee, it will negatively hit refining
companies, while benefiting upstream players. A weak dollar, on other hand, will help downstream
companies as India primarily relies on imported crude oil to meet its requirements