Oil Stocks Outlook for the week – 01 to 05.02.2016
PSU
retailers seen in range; upstream companies down
( www.rupeedesk.in )
Stocks
of state-owned oil marketing companies are seen range bound next week, and
are
expected to move with a positive bias in the absence of any major triggers. The
trend
will be dictated primarily by news flow, broad market sentiment and global
crude
oil prices. Even as the slump in oil prices is expected to help the gross refining
margins
of downstream companies, it may continue to cast a shadow on upstream
stocks
like Oil and Natural Gas Corp, Oil India and Cairn India. Crude oil prices
made
a slight recovery this week but unless there is a sustained improvement,
upstream
stocks are likely to remain under pressure in the immediate to near term.
The
Indian crude basket ended the week at $29.95 per barrel, after slipping below
$25
a
barrel last week. Since Jan 1, it has fallen by over 9%. The movement of crude
oil
prices
going forward will not just impact oil stocks but also the broader market. Any
major
recovery in oil prices in the near future remains unlikely given that supplies
from
Iran are only going to worsen the oil glut. To add to that, Iraq may push up
its
crude
oil output as well. While there are some attempts among oil producing nations
to
reach a consensus on cutting oil output, the chances of an actionable decision
are
really
slim. Ahead of its meeting with Organization of the Petroleum Exporting
Countries,
Russia has reportedly said it will consider cutting output only if a
consensus
is arrived at.
At
this stage, a slight improvement in oil prices is likely to help stocks of
downstream
companies,
staring at significant inventory losses given the sharp fall in crude oil
prices
in past few weeks. However, another spate of fall in crude oil prices will cap
gains
for refiners, particularly Indian Oil Corp and Hindustan Petroleum Corp, as a
sharp
fall in oil prices may reduce the value of their stored products and raw
material.
The
other state-owned refiner, Bharat Petroleum Corp, is likely to fare better on
the
inventory
management front. On the domestic front, the markets will keenly watch the
Reserve
Bank of India's bi-monthly monetary on Tuesday. The central bank is seen
keeping
interest rates unchanged, given the recent volatility in financial markets, and
the
impending Union Budget for 2016-17 (Apr-Mar).
A
weak rupee may also turn out to be an irritant for downstream players who
depend
on
imported crude oil to a large extent. The fortnightly revision in prices of
petroleum
products,
scheduled for Sunday, will also have some sentimental impact on stateowned
refiners'
stocks early next week. But the impact is unlikely to sustain as price
revisions
have now become routine. The market will also be watching out for any
further
increase in excise duty on petrol and diesel.
While
giving a buy rating on refining companies' stocks, said it is a good time for
investors
to accumulate stocks of upstream players, particularly ONGC and Oil India,
given
that crude prices have historically been cyclical in nature.
