Oil Stocks Outlook for the week – 28.12.2015 to 01.01.2016
Refiners
seen up as GRMs continue northward trend
( www.rupeedesk.in )
Stocks
of the state-owned refiners Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd
and
Hindustan Petroleum Corp Ltd are seen extending gains next week as most
analysts
expect refining margins to remain robust in the near term. Crude oil prices
are
likely to remain in a trough as the glut in market is expected to worsen after
the
US
opened up exports from the country after four decades.
While
crude oil prices recovered this week, the rise is expected to be capped below
$40
a barrel mark. The lower prices are helping demand for oil products, especially
auto
fuels, which has further lifted refining margins. The Indian basket of oil is
still
below
$35 a barrel mark.
Indian
refiners, especially Reliance Industries Ltd are seen benefiting because of their
new
and complex refineries and low oil prices. We expect RIL to be one of the
biggest
beneficiaries of this shift in global refining margins given its scale,
complexity
and dynamic product slate. Also, the upcoming refineries of IOC, BPCL
and
the recently commissioned units of BPCL and HPCL are amongst the most
complex
globally and are much more competitive.
This
will help them earn a premium over the Singapore benchmark refining margins,
which
have moved up to $10 a barrel, from $8 a few months ago. However, the low
prices
are likely to weigh on Oil and Natural Gas Corp Ltd and Oil India Ltd shares,
which
are expected to trade with a negative bias next week. The production cost of
oil
from
some of ONGC's fields is higher than current prices, which will make extraction
unviable.
Even
the average cost of production, whose largest producing asset is the ageing
offshore
field in Mumbai High, is over $30 a barrel. If oil prices manage to hold on to
this
week's gains, ONGC shares may trade steady but significant gains from current
levels
are unlikely.
