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Softening crude oil prices and a stronger rupee may keep stocks of the three state-owned oil marketing companies Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp Ltd buoyant next week. Post market hours yesterday, BPCL's arm Bharat Petro Resources announced another discovery in the promising Area-1 block in Mozambique's Rovuma basin. BPCL said the operator Anadarko has discovered new natural gas accumulations in the block. This may potentially lead to increase in gas reserves from the block. Stocks of BPCL are expected to open sharply higher on Monday and may even end the week with handsome gains. Moreover, the Indian crude oil basket fell to $97.66 a barrel on Wednesday, from $101.35 Friday. It has come down significantly from the average price of $109.46 a barrel in Jan-Mar.
The rupee, too, has gained over the last few days, ending below the 54-rupees-a-dollar mark yesterday. These two developments are significantly positive for Indian oil refining and marketing companies as it will reduce their revenue losses on subsidised fuels. Weakness in crude prices is seasonal and may persist near term. With demand likely to remain soft on refinery maintenance and the markets well supplied, oil prices will likely remain soft near term before recovering in 2H13 (second half of 2013). The fall in crude oil prices have reduced revenue losses on diesel and other subsidised fuel significantly.
From 17 rupees an ltr in September, the revenue loss on diesel has shrunk to just 6.4 rupees now. It may decline further to 5.0 rupees. This will also benefit upstream companies such as Oil and Natural Gas Corp and Oil India as they stock a significant portion of the revenue losses on subsidised fuel. Stocks of these companies are seen range bound with a positive bias as decline in crude prices also mean lower revenues for these companies. Reliance Industries' stocks are seen subdued in the near term, refining margins the key driver profits for the company in Jan-Mar to soften in the near term as several refineries resume operations post maintenance shutdown. The company's Jan-Mar earnings though did not excite markets as the cash operations again contributed a significant proportion of profits while core operations drew concerns. We expect reversal in RIL's profit trajectory in the medium term versus the past few quarters given the recent steep decline in refining margins. This along with little clarity on the KG-D6 gas output revival plan may continue to weigh on the stock in the near term.
