Oil
Stocks Outlook for the week – 02 to 06.05.2016
PSU refiners seen positive; crude oil
price eyed
( www.rupeedesk.in )
Stocks of public sector oil refining
companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and
Hindustan Petroleum Corp Ltd are
likely to continue their strong showing next week on expectations
of favourable Jan-Mar earnings,
backed by inventory gains and robust refining margins. In the absence of any
major sector-specific triggers in the immediate term, the trend will be
dictated by
global prices of crude oil, broad
market sentiment, and news flow. Stocks of the three oil marketing
companies have outperformed the
market, and are expected to continue on that path. Every dip in
prices of refiners' shares should be
taken as a buying opportunity.
Prices of crude oil have improved
over the past few weeks but there has not been any sharp rise.
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 gradual improvement. 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. The three retailers are expected to revise fuel prices on Friday, and
while this is a routine exercise now, it is likely to have some sentimental
impact early next week. 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 with a negative bias, and their fate will be
decided by global prices of crude oil.
Stocks of upstream companies have
underperformed, even when market sentiment has been positive, and they shall
remain weak in the near term. Every bounce in upstream stocks should be
considered a selling opportunity.
Crude oil futures on local and global exchanges are seen extending
gains for the fifth consecutive week,
buoyed by a fall in US oil production and the dollar's downtrend.
Markets seem to have ignored the on
going glut in the global oil market and record-high US oil
inventories. The positive market
sentiment, the momentum, and the proximity of the price to the $50 per barrel mark
should lure in further buyers. US crude oil production fell to an 18-month low
of 8.938 mln barrels in the week ended Friday, down 15,000 barrels per day from
a week ago. Oil output in the country has fallen for the seventh consecutive
week. However, a rise in prices to near $50-a-bbl levels could arrest the fall
in US oil output, as shale oil operations would become much more viable at that
price point.
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 the other
hand, will help downstream companies as India primarily relies
on imported crude oil to meet its requirements.
