Oil Stocks Outlook for the Week – 20 to 24.06.2016
Crude prices key as
'Brexit' uncertainty looms
( www.rupeedesk.in )
The trend for stocks of
oil companies next week is likely to be dictated by the movement in crude oil prices and the broader
market, both of which are likely to be impacted by the uncertainty around UK's referendum on
Thursday on its European Union membership. As such investors may avoid riskier assets which
would weigh on oil prices and the market. Falling equities and strength in the dollar against the euro
earlier this week may also weigh on oil prices. US crude oil inventories
fell by 900,000 barrels to 531.50 mln bbl in the week ended Friday. Though inventories declined for
the fourth straight week, it was much lower than the expectation of a 2.1- mln-bbl fall. A rise in
the number of rigs drilling for oil in the US last week also fuelled
speculation that production could
rebound in the weeks ahead, underlining worries over a supply glut. Stocks of state-owned oil marketing
companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd--may
outperform the market next week, driven by the expectations of a fall in prices of crude oil,
their primary input.
OMCs (oil marketing
companies) may outperform the market next week after we saw some consolidation this week.
The market is declining but the stocks are holding on. Crude oil price is the key. We may see an
immediate downward move in Brent prices, which will be a positive for these stocks. On the other
hand, upstream stocks--Oil and Natural Gas Corp Ltd, Oil India Ltd, and Cairn India Ltd--are likely to
remain under pressure, in line with prices of crude oil. Fluctuations in the dollar-rupee exchange
rate are also likely to affect 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 other hand, will help downstream companies, as India primarily relies on imported crude oil to
meet its requirements.
