GOLDEN RULES FOR TRADING

Oil Stocks Outlook for the week – 04 to 08.01.2015 (RIL seen up next weak, upstream cos under pressure)

Oil Stocks Outlook for the week – 04 to 08.01.2015
(RIL seen up next weak, upstream cos under pressure)
  www.rupeedesk.in )


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.