Oil Stocks Outlook for the week – 31.08.2015 to 04.09.2015
(Seen
negative bias next week)
Fear
of mounting inventory losses and weakening refining margins may continue to
weigh on shares of oil refining and marketing companies next week. Revision in
petrol and diesel prices due for announcement on Tuesday next week may also
have a sentimental impact.
While
oil prices have fallen sharply, since the last revision, the Indian currency
has depreciated
significantly,
and though there is still likely to be a downward revision, it may not be huge,
an
official
at one of the three state-owned oil companies said.
Public
sector oil marketing companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd
and
Hindustan
Petroleum Corp Ltd readjust petrol and diesel prices every fortnight. From
around $49 in mid-August, the price of Indian basket of crude oil had slipped
to below $43 this week before
recovering
to $44.3 on Thursday.
Meanwhile,
the Indian currency slipped from around 65.0 to a dollar to 66.14 yesterday.
However, broad market trend would also come into play and if there is any
recovery in the major indices, the downside would be capped for oil refiners'
stocks.
We
believe that benchmark indices are likely to consolidate next week as sentiment
remains wobbly following the recent sell-off in global markets, triggered by
concerns over the health of the Chinese economy. The sharp pullback in oil
prices today and likely continuation of the trend next week could also provide
some upside support and keep the counters in a range.
The
uptick will also help shares of Oil and Natural Gas Corp Ltd and Oil India Ltd,
as valuations
have dipped below worst bear case scenarios for crude oil prices. We
reiterate BUY on ONGC/OIL, as we believe the stocks are now discounting a
bear-case scenario of $50/bbl crude realisations and $4/mBTU of domestic gas
price in perpetuity