Oil Stocks Outlook for the week – 29.08.2016 to 02.09.2016 (PSU refiners seen mixed; IOC, BPCL earnings eyed)

Oil Stocks Outlook for the week – 29.08.2016 to 02.09.2016
(PSU refiners seen mixed; IOC, BPCL earnings eyed) )

It's likely to be mixed bag for stocks of state-owned oil refining companies--Indian Oil
Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd-- as they are
seen trading in a range next week.

In case of Indian Oil and Bharat Petroleum, expectations of strong Apr-Jun earnings
may lend some positivity to their scrip. Earnings are expected to be driven by inventory
gains and strong gross refining margin. Indian Oil is slated to announce its Apr-Jun
earnings on Monday, while Bharat Petroleum will do so on Thursday.

Even as the bias on these two stock is neutral and they are likely to consolidate next
week, there are definite signs of correction in the Hindustan Petroleum scrip, which is
likely to trade in a range with a negative bias. In the absence of any other major trigger,
the trend for oil companies over the next few sessions will be determined by the
movement in crude oil prices as well as sentiment in the broad market.

Prices of crude oil may slip next week as cracks have appeared among members of the
Organization of the Petroleum Exporting Countries ahead of a meeting next month.
Earlier, Russia and Iran had sent signals that they may support joint action to lift oil
prices, when OPEC and some non-OPEC members meet at the International Energy
Forum on Sep 26-28.

However, Saudi Arabia, the world's largest oil exporter, seems to have thrown a spanner
in the works. Saudi Arabian Energy Minister Khalid Al-Falih said on Thursday that he
does not "believe any significant intervention in the market is necessary other than to
allow the forces of supply and demand to do the work for us."
High level of the US crude oil inventory is also weighing on oil prices and may
continue to do so next week. According to data released on Wednesday, US crude oil
inventories rose by 2.5 mln bbl in the week ended Aug 19 and distillate stocks went up
by 100,000 bbl.

The three companies will revise fuel prices on Wednesday, and while it is a routine
exercise, it may have some sentimental impact on their scrip. For upstream companies
like Oil and Natural Gas Corp Ltd, Oil India Ltd, and Cairn India Ltd, weakness in
crude oil prices will have a negative impact, while it could lend some positivity to
stocks of refining companies. On charts, however, shares of upstream companies are
seen trading with a positive bias,.

Fluctuation in dollar-rupee exchange rate is also likely to affect shares of oil companies.
If the dollar strengthens against the rupee, it will hit refining companies and benefit
upstream players. A weak dollar, on other hand, is advantageous for downstream