Oil Stocks Outlook for the week – 31.07.2017 to 04.08.2017

Oil Stocks Outlook for the week – 31.07.2017 to 04.08.2017

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Oil Stocks Outlook for the week – 31.07.2017 to 04.08.2017 )

Stocks of public sector oil refiners and retailers--Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp--are expected to rise next week. The three state-owned fuel retailers continue to be on solid ground, benefiting from the rise in domestic demand for fuels as well as robust refining and marketing margins, which lend a positive outlook for these stocks in the medium-to-long term. Of the three stocks, focus shall be on Indian Oil and Hindustan Petroleum in the later part of the week as they are scheduled to detail their earnings for the three months ended June on Thursday and Friday, respectively. Refiners are expected to report weak numbers on the
likelihood of inventory losses during Apr-Jun. These losses arise in case of a sharp downward movement in price of crude oil and petroleum products between the time crude is procured and the time products are sold. Analysts expect Indian Oil to report a net profit of 30.67 bln rupees in Apr-Jun, down 62.9% on year and 17.6% on quarter. Hindustan Petroleum's net profit is seen falling 50.7% on year and 43.2% on quarter to 10.34 bln rupees. In the absence of any other major sectoral triggers, stocks of oil companies could be impacted by prices of crude oil, news flow and sentiment in the broader market. Futures contracts of crude oil on the New York Mercantile Exchange are expected to hit the crucial $50-a-barrel level next week as decision of major producers to cut exports is likely to lure investors. Inventory decline in the US for another week is also seen supporting prices going ahead. After the meeting of members of the Organization of the Petroleum Exporting Countries, as well as non-OPEC countries on Monday, Saudi Arabia said it will cap its exports at 6.6 mln bpd in August. United Arab Emirates and Kuwait followed suit. State-run Kuwait Petroleum Corp has pledged to cut "contractual sales volumes of oil for 2017", and the UAE has also promised that it will reduce its crude exports by 10% starting in September. This would mean a continuation of stock reduction in the US next month. We regard the announcement of export cuts as clever marketing; due to higher own needs in the summer months, Saudi Arabia has less crude oil for exporting. At the meeting, Nigeria voluntarily agreed to adhere to production cuts as soon as its output hits 1.8 mln bpd, which is also a positive for prices. Currently, the African nation is exempt from the output cut deal. Stocks of upstream players such as ONGC and Oil India may react positively if crude oil prices rise next week. On technical charts, the two stocks are expected to
consolidate. Any major shift in the dollar-rupee exchange rates could also impact shares of oil companies. If the dollar weakens against the rupee, it could add to the woes of upstream companies. This is because upstream companies price oil and gas in dollar terms and a weak greenback leads to a decline in the actual price realisation in rupee terms. On the other hand, refining companies stand to gain from a weaker dollar, as it would reduce their outgo towards purchase of crude oil and gas.

Source : Cogencis Information Services Ltd.