Oil Stocks Outlook for the week – 04 to 08.01.2015
(RIL seen up next weak, upstream cos
under pressure)
Stocks
of upstream oil companies are seen under pressure next week on
continued
weakness in crude oil prices, but Reliance Industries Ltd is
likely
to maintain its upward momentum on the back of strong refining
margins.
Rebalancing
of global crude oil market is only likely in the second half
of
this year, as inventory build-up starts thinning, but increasing supplies
from
Iran, once the sanctions are lifted, will keep supplies high.
However,
pressure on oil prices may continue in the near term, which will
weigh
on the shares of Oil and Natural Gas Corp Ltd, Oil India and Cairn
India
Ltd.
The
cost of the Indian basket of crude oil is below $33 per bbl mark now,
which
is significantly lower than the production cost of ONGC and Oil
India.
The companies are essentially operating most of their producing
assets
at a loss.
The
International Energy Agency has forecast growth in global oil
demand
at 1.2 mln bbl per day in 2016, while supplies from non-
Organization
of Petroleum Exporting Countries is likely to shrink by 0.6
mln
bbl a day. This may help wipe out the current surplus supplies of
around
2 mln bbl per day and help stabilise crude oil prices.
While
there is little downside in stocks of ONGC and Oil India from
current
levels unless crude slips further, the stocks are unlikely to witness
any
recovery in the near term. The low prices, however, are beneficial
for
the oil refining and marketing companies as refining margins have
expanded
to historically high levels.
Indian
Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan
Petroleum
Corp Ltd are will also report higher GRMs, though inventory
losses
may wipe out some of the gains.