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Oil Stocks Outlook for the week – 26 to 30.12.2016

Oil Stocks Outlook for the week – 26 to 30.12.2016


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Oil Stocks Outlook for the week – 26 to 30.12.2016
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In the absence of any major sectoral triggers, shares of public sector oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd--are likely to trade range-bound next week, even as they are backed by strong fundamentals, including strong fuel demand and robust refining and marketing margins. In the coming week, movement in the stocks of oil companies will primarily depend on crude oil prices, news flow, and the broader market. For stocks of upstream companies such as Oil and Natural Gas Corp Ltd, Cairn India Ltd, and Oil India Ltd, the rise in crude oil prices over the past few weeks has lent some strength for the immediate-to-near term. The recent spurt in prices followed the Organization of the Petroleum Exporting Countries' decision to cut output by 1.2 mln barrels per day. It was further helped by major non-OPEC producers joining the production management arrangement by agreeing to cut their output by 558,000 bpd. Though the rise in prices of crude oil will increase input costs for refiners, they are set to benefit from inventory gains due to the spike. Also, given that prices of most fuels are now market-linked, the downside of higher crude oil prices for these companies seems limited for the time being. Futures contracts of crude oil are likely to move in a narrow range on the domestic bourse, mirroring parent contracts on the New York Mercantile Exchange. NYMEX is likely to see thin trade because of Year-end holidays. Investors will eye statements by major oil producers such as Saudi Arabia, Russia and Libya for cues on whether they will stick to the output cut deal, and whether producers exempt from the deal will ramp up production. Fluctuation in the dollar-rupee exchange rates is also likely to affect the shares of oil companies. A weaker rupee will benefit upstream companies, as they sell oil and gas in dollars. But refiners will lose if the dollar strengthens, as their outgo on buying oil and gas will increase. In terms of technical charts, it is likely to be a mixed bag for stocks of oil companies.