Oil
Stocks Outlook for the week – 12 to 16.01.2015
( www.rupeedesk.in )
Stocks of state-owned upstream oil companies Oil and Natural Gas Corp
Ltd and Oil India are seen upbeat next week as the government is likely to spare them the
burden of subsidy for the rest of 2014-15 (Apr-Mar).
The two companies have already paid 318 bln rupees to state-owned oil
marketing companies as subsidy between April and September. According to a report, the
move is being planned in light of the sharp decline in crude oil prices which have eroded the
realisations of ONGC and Oil India.
The upstream companies provide public sector oil
refining-cum-marketing companies discount on crude oil purchased by them. They have been giving a discount of
$56 a barrel until recently. However, prices have declined below $50 now and if the discounts
continue these companies would have to pay money to Indian Oil Corp, Bharat Petroleum Corp and
Hindustan Petroleum Corp along with free crude. There are still concerns because of the
lower crude prices, which will hit the profitability of ONGC and Oil India.
On the other hand, the three oil marketing companies' shares may trade
in a range with a positive bias next week. While lower crude prices will lift margins,
the companies have piled up massive inventory losses.
On the positive side, the macro environment is improving for these
companies. Fall in crude prices will eventually lead to pressure on GRMs. However, for all the
three OMCs, refining does not contribute more than 30% to EBITDA (earnings before interest, tax,
depreciation and amortisation)," HDFC Securities said in a recent note.
Reliance Industries Ltd will be in focus next week as the company is
scheduled to report earnings on Jan 16. However, since the results will be announced after
market hours on the last trading day of the week, the impact will be more visible in the week
after that. The company's earnings are seen under pressure due to falling crude prices, pressure
on refining and petrochemicals margins.
