Oil Stocks Outlook for the week – 19 to 23.10.2015
RIL
seen up on buoyant Jul-Sep GRM, PAT
( www.rupeedesk.in )
Stocks
of Reliance Industries Ltd are expected to open significantly up on Monday and
may hold on to gains in the first half of next week after the company reported
a surprise expansion in net profit and gross refining margin for Jul-Sep.
However, gains may be capped as global refining margin environment remains weak
and the Jul-Sep margin performance may prove to be a peak, at least in the near
term.
RIL's
Jul-Sep net profit increased 14% quarter-on-quarter to 65.61 bln rupees with
GRM hitting a 7-year high of $10.6 a barrel. Analysts had predicted a decline
to $8.5-9.0 per barrel in the company's Jul-Sep GRM. In Apr-Jun, RIL's GRM were
at $10.4. Also, market participants will take cue from management commentary in
conference call scheduled with analysts and as more clarity emerges on the GRM
front.
The
company credited an aggressive crude sourcing strategy and active product placement
for the unexpected increase in margins when the Singapore benchmark GRM shrunk
23%. The gap between the company's GRM with that of Singapore benchmark widened
to $4.3 per barrel. The GRM spike was also surprising because product spread
for diesel --which accounts for 40-50% of RIL's slate -- were weak in the
quarter.
RIL's
performance is unlikely to rub on the public sector refiners --Indian Oil Corp
Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd -- because
their GRMs are usually significantly lower. Also, these companies don't have as
much flexibility in terms of changing product volumes or crude sourcing due to
their older and less complex refineries. Also, inventory loss in the wake of
the decline in oil prices in Jul-Sep will weigh on their earnings. Stocks of
these companies are seen range-bound and will mostly take cues from oil price
and rupee-dollar movement, as no major cues are in sight. These companies will
report Jul-Sep earnings in second week of November.
