Oil Stocks Outlook for the week (02 - 06.Jul.2012)
rupeedesk
RUPEE DESK: Oil Stocks Outlook for the week (02 - 06.07.2012)
Stocks of state-owned oil marketing companies are seen up next week in line with the market as crude oil prices continue to remain low and rupee too has regained some strength against the dollar. The Indian basket continued to hover around $90 a barrel, though it had risen slightly this week. However, Crude to remain weak in the near term, which will help reduce losses of the oil marketing companies. Decline in crude prices has offered respite to oil PSUs (public sector undertakings) reeling as they were under the burden of high under-recoveries. Also, with European Union leaders reaching an agreement on relaxed conditions to help tackle the region's debt crisis, the outlook for Indian currency has improved. The rupee's weakness against the dollar had wiped out most of the gains of Indian oil refiners as it made imports costlier. The three state-owned companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--import over 75% of their crude oil requirements.
Investors also expects the government to take a decision on hiking diesel and
cooking gas prices after the presidential elections next month. The
current scenario makes this the right time for reform, and we hope the
government takes full advantage of it to push through deregulation of diesel
prices and increase prices of other subsidised products. HPCL is seen as
the biggest beneficiary of the softening crude prices, as it has to buy
significant quantity of oil products from other refiners. HPCL is available
at cheapest valuation trading at significant discount amongst the peers, and
the gap could shrink in the event of any hike in the fuel prices or
appreciation in INR (rupees).
The situation will also benefit upstream companies like Oil and Natural Gas Corp, Oil India, and GAIL (India), which stock one-third of the losses incurred by the oil marketing companies. Stocks of all upstream oil companies are seen rising in tandem with the refining majors. Reliance Industries is also seen up next week after partner Niko Resources said the KG-D6 reserves may double if a new development plan for the block is approved later this year. Niko had last week drastically reduced the proven and probable reserves estimates for KG-D6.
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