Oil Stocks Outlook for the week (13-17.08.2012)

[rupeedesk]

Oil Stocks Outlook for the week (13-17.08.2012)

Stocks of state-owned oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--are seen subdued amid rising crude oil prices and a weak rupee. The market believes that the prospects of the government increasing prices of the sensitive fuels--diesel, kerosene and cooking gas--are very bleak in the near term and the companies may continue to pile up losses.

These three companies reported massive losses for Apr-Jun as the government did not compensate them for the losses incurred on subsidised fuels. Meanwhile, crude prices have started rising with the Indian oil basket touching $109.15 a barrel on Thursday from $104.87 last week. The rupee, however, is stable over $55 per dollar.

We prefer BPCL among OMC's due to its strong E&P potential and upstream companies, ONGC and Oil India, due to their attractive valuations and dividend yields. While the government has been making noises about the inevitability of a hike in diesel prices, fear of opposition from its allies has stymied the move so far. The companies are currently losing over 12 rupees on sale of every litre of the fuel. Oil Minister S. Jaipal Reddy had said earlier this month that a hike was needed but the decision would have to be a "political" one.

Reliance Industries is seen rangebound with a positive bias in the near term after the government approved the company's investment plan for several fields in KG-D6, though with riders. The move came after the company agreed to give the country's top auditor access to KG-D6 accounts. The move is seen as a positive one as it may help company carry out its integrated development plan for the block and increase output in the long run. We believe the outlook for RIL's core business remains weak in near term.

By RUPEE DESK

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