Oil Stocks Outlook For The Week – 04 To 08.12.2017
Stocks of state-owned refiners and retailers Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are seen moving in a range next week with an underlying positive bias. In terms of
fundamentals, the three state-owned oil marketing companies continue to be on solid ground, benefiting from healthy domestic demand for fuel as well as robust core refining and marketing margins, which lend a positive outlook to these stocks. We see healthy upsides to OMC stocks at current valuations. Apart from a confidence boost from better disclosure levels across OMCs this earnings season, we remain structurally positive on GRMs (gross refining margins), considering the improved oil demand outlook and anticipated revival in marketing margins by end-FY18. In the absence of any major sectoral triggers, stocks of oil companies are expected to be guided by the movement in crude oil prices, news flow, and the sentiment in the broader market. The extension of the output cut deal between Organization of the Petroleum Exporting Countries and major non-
OPEC crude oil exporters till the end of 2018 is likely to keep crude oil priced buoyed in the coming week. At their meeting in Vienna on Thursday, OPEC and non-OPEC members like Russia agreed to extend the deal for another nine months. The deal was earlier set to expire in March. Late last year, OPEC and non-OPEC members had agreed to cut production by 1.8 mln barrels per day in Jan-Jun to bring stability to the oil market. The deal was then extended to March 2018. The producers have also said that further adjustments will hinge on the supply-demand fundamentals and the production cuts will be reviewed in June. Libya and Nigeria countries previously exempt from production cuts have agreed to a cap their output at the current levels of 1 mln bpd and 1.8 mln bpd, respectively. However, the rise in prices is capped by worries of high global oil inventories and rising US output. Stocks of upstream players such as Oil and Natural Gas Corp and Oil India may move in line with the movement in crude oil prices next week. The fundamentals for these stocks have started improving, as strong oil prices will lead to a strong financial performance for upstream companies. Any major shift in the dollar-rupee exchange rate could also impact stocks of oil companies. If the dollar weakens against the rupee, it could add to the woes of upstream companies. This is because upstream companies price oil and gas in dollar terms and a weak greenback pulls down the actual price
realisation in rupee terms. On other hand, refining companies stand to gain from a weaker dollar, as it would reduce their outgo towards purchase of crude oil and gas.
Source : Cogencis Information Services Ltd.
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Stocks of state-owned refiners and retailers Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are seen moving in a range next week with an underlying positive bias. In terms of
fundamentals, the three state-owned oil marketing companies continue to be on solid ground, benefiting from healthy domestic demand for fuel as well as robust core refining and marketing margins, which lend a positive outlook to these stocks. We see healthy upsides to OMC stocks at current valuations. Apart from a confidence boost from better disclosure levels across OMCs this earnings season, we remain structurally positive on GRMs (gross refining margins), considering the improved oil demand outlook and anticipated revival in marketing margins by end-FY18. In the absence of any major sectoral triggers, stocks of oil companies are expected to be guided by the movement in crude oil prices, news flow, and the sentiment in the broader market. The extension of the output cut deal between Organization of the Petroleum Exporting Countries and major non-
OPEC crude oil exporters till the end of 2018 is likely to keep crude oil priced buoyed in the coming week. At their meeting in Vienna on Thursday, OPEC and non-OPEC members like Russia agreed to extend the deal for another nine months. The deal was earlier set to expire in March. Late last year, OPEC and non-OPEC members had agreed to cut production by 1.8 mln barrels per day in Jan-Jun to bring stability to the oil market. The deal was then extended to March 2018. The producers have also said that further adjustments will hinge on the supply-demand fundamentals and the production cuts will be reviewed in June. Libya and Nigeria countries previously exempt from production cuts have agreed to a cap their output at the current levels of 1 mln bpd and 1.8 mln bpd, respectively. However, the rise in prices is capped by worries of high global oil inventories and rising US output. Stocks of upstream players such as Oil and Natural Gas Corp and Oil India may move in line with the movement in crude oil prices next week. The fundamentals for these stocks have started improving, as strong oil prices will lead to a strong financial performance for upstream companies. Any major shift in the dollar-rupee exchange rate could also impact stocks of oil companies. If the dollar weakens against the rupee, it could add to the woes of upstream companies. This is because upstream companies price oil and gas in dollar terms and a weak greenback pulls down the actual price
realisation in rupee terms. On other hand, refining companies stand to gain from a weaker dollar, as it would reduce their outgo towards purchase of crude oil and gas.
Source : Cogencis Information Services Ltd.
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