Oil Stocks Outlook for the week – 08 to 12.02.2016
(PSU
refiners seen firm; Oct-Dec earnings eyes)
Shares
of state-owned oil marketing companies are expected to be firm
next
week on expectations of sequentially stronger earnings for the
quarter
ended December. All public sector oil and gas companies are
scheduled
to announce their earnings for the December quarter in the
coming
week.
Upstream
stocks like Oil and Natural Gas Corp Ltd and Oil India Ltd are
likely
to remain subdued, given the likelihood of a fall in bottomline due
to
the slump in prices of crude oil. Even as individual stocks are likely to
react
in line with their financial result, the trend will also be dictated by
news
flow, broad market sentiment, and global prices of crude oil.
The
three state-owned refiners--Indian Oil Corp Ltd, Bharat Petroleum
Corp
Ltd, and Hindustan Petroleum Corp Ltd--are likely to report strong
numbers
on quarter, on the back of relatively-better gross refining
margin.
The
regional benchmark Singapore complex gross refining margin for
Oct-Dec
rose almost by a third on a sequential basis to $8 a barrel, due to
low
crude prices and good product spreads, and is likely to reflect
positively
on the refiners' gross refining margins.
Margins
will also be helped by sequentially-lower inventory losses as the
decline
in oil prices in Oct-Dec was not as steep as in Jul-Sep. The Indian
crude
oil basket averaged at $41.69 a bbl, lower by $8.52 a bbl from Jul-
Sep.
The fall in Jul-Sep from Apr-Jun was $11.26 per bbl.
Bharat
Petroleum will be the top pick among refiners next week, as the
company
is likely to have lower losses due to better inventory
management
than the other two refiners. The country's largest refiner
Indian
Oil is expected to report the heaviest inventory loss among the
three
companies, which will adversely impact its margin.
Prices
of crude oil have made a slight recovery over the past couple of
weeks,
but unless there is a sustained improvement, upstream stocks are
likely
to remain under pressure. However, in the immediate term, the
recovery may lend some positivity to these stocks