GOLDEN RULES FOR TRADING

Oil Stocks Outlook for the week – 22 to 26.02.2016 Likely to trade in a range

Oil Stocks Outlook for the week – 22 to 26.02.2016

Stocks of oil marketing companies are likely to trade in a range and stock
movement will mostly be determined by news flow as the focus moves on
to the Union Budget and Railway Budget for 2016-17 (Apr-Mar), to be
detailed on Feb 29 and Feb 25, respectively.

Oil prices have been topsy-turvy in the last few weeks, swinging between
$25 a barrel to $32 a barrel. However, the commodity ended with their
first weekly increase in a month after Russia and Saudi Arabia agreed to
freeze production at January levels.

This reflected in the gains in stocks of upstream companies Oil and
Natural Gas Corp Ltd, Cairn India Ltd, and Oil India Ltd, with the first
two being top gainers in energy space this week. The trend may continue
if more countries agree on freezing output, or even cuts, to support oil
prices.

However, refiners may see change in their business environment as
demand for some oil products may slide going forward as summer sets in.
Gross refining margins are likely to have peaked this quarter. We believe
that financial performance of Indian Oil Corp Ltd, Bharat Petroleum Corp
Ltd and Hindustan Petroleum Corp Ltd could improve in Jan-Mar, due to
strong margins and lower inventory losses.

GRMs should benefit from a further reduction in energy costs, lower
inventory losses and higher gasoline and naphtha cracks. However, sharp
movement in oil prices could hit earnings of these companies and hence,
capital gains