Oil Stocks Outlook for the week – 04 to 08.04.2016
PSU
refiners seen in range; oil price, market eyed
( www.rupeedesk.in )
Stocks
of public sector oil refining and marketing companies are likely to trade in
range next week,
with
a positive bias. The trend will be primarily dictated by news flow, broad
market sentiment, and
global
crude oil prices. Stocks of the three state-owned refiners--Indian Oil Corp
Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--are likely to
continue with a strong showing
in
the near term, on hopes of robust Jan-Mar earnings and expectations of
inventory gains against
inventory
losses in the previous quarters.
Prices
of crude oil have recovered over the past month or so, helping upstream
companies. Even as an uptick in prices of crude oil is considered a negative
for margins of oil-refining companies, in the
current
environment, these entities, too, have benefited from the rise. Stocks of the
three state-owned
fuel
retailers have reacted positively on expectations of inventory gains due to the
recent recovery in
crude
prices.
Though
prices of crude oil are largely seen stabilising after some upward movement in
the near-tomedium term, it is not clear if the current uptick in prices will
continue in the week starting Monday. As far as upstream players like Oil and
Natural Gas Corp Ltd, Oil India Ltd and Cairn India Ltd are concerned, crude
oil price movement in the global markets will be the key.
Oil
prices are likely to be in the $38-40 per barrel in the immediate term. We
expect upstream stocks
to
trade in a narrow range given that no sharp increase or decrease in oil prices
is expected in the next
few
days. Crude oil futures on local and global exchanges may trade with a positive
bias on bargain
buying,
and hopes of an outcome from the meeting between major producers later this
month.
However,
there is concern over how effective a possible deal on freezing output levels
would be, given that a few major producers are indicating that they would
consider freezing output only if other
producers
agree to do the same. The cut in domestic gas price to $3.06 per mBtu from
$3.82 per mBtu, which was announced on Thursday, has been factored in by the
market and is unlikely to have any further bearing on stocks of upstream
companies.
As
far as the broader markets are concerned, all eyes would be on the Reserve Bank
of India's
monetary
policy on Tuesday, before which indices are seen trading in a narrow range with
a positive
bias.
Markets are expecting a 25-basis-point cut in repo rate. However, if the
central bank maintains
status
quo, it may lead to a negative reaction. Fluctuation in the dollar-rupee
exchange rate is also
likely to affect stocks of downstream and upstream oil companies. If the
dollar strengthens against the rupee, it will 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