Oil Stocks Outlook for the week – 23 to 27.11.2015
PSU
companies seen in range, bias weak; GAIL seen down
Stocks
of oil marketing companies may remain in a range next week due to lack of
triggers
but trading may be volatile ahead of November futures and options contracts
expiry
on Thursday. With oil prices moving downwards again, concerns have emerged
over
inventory losses, especially for Indian Oil Corp Ltd which has to maintain the
highest
level of crude oil and products stock among all Indian refiners.
The
Indian basket of crude oil is hovering around $40 a barrel now, down from
around
$42
last week and $47-48 level at the end of last quarter. International oil prices
are
trending
lower and analysts are predicting a long and harsh winter for oil prices as
inventories
remain at high levels. This could weigh on the refiners as inventory losses
may
wipe out gains in refining margins. Oil (average) further crashed 6% QTD, which
may
impact upstream and OMCs" near term earnings (inventory loss). Oil
producers Oil
and
Natural Gas Corp Ltd and Oil India Ltd may also remain weak in the near term
unless
there is a rebound in oil prices. In the near term, low oil prices will
continue to
weigh
on upstream earnings. GAIL (India) Ltd shares may also come under pressure next
week
after Moody's cut the outlook on the company's Baa2 long term rating to
negative
from
positive.
The
ratings agency cited rising share of revenue from cyclical business segments,
especially
petrochemicals, as the reason for the action. The rating action also considers
the
weakness in petrochemicals and liquid hydrocarbon segment and the resulting
negative
impact on the credit profile of GAIL. GAIL stocks gained 24% this week on
talks
that Petronet LNG may be successful in renegotiating better terms for its
liquefied
natural
gas import contract with Qatar's RasGas. Petronet's take-or-pay contract with
RasGas
for lifting LNG at over $13 per mBtu is bleeding the company as spot gas prices
are
hovering just around $7 per mBtu now. GAIL has a contract with Petronet LNG to
lift
60%
of the volumes it is taking from RasGas. The success in renegotiation has not
yet
been
confirmed by either of the companies and the Moody's actions may trigger profit
booking.