Oil Stocks Outlook for the week (25-29-06.2012)

[rupeedesk]

Oil Stocks Outlook for the week (25-29-06.2012)

Stocks of state-owned oil marketing companies are likely to trade in a narrow range next week with negative bias due to likely profit booking ahead of June futures contracts expiry Thursday. Stocks of Bharat Petroleum Corp Ltd, Indian Oil Corp Ltd, and Hindustan Petroleum Corp Ltd gained sharply this week because of a sharp fall in crude prices, even as rupee touched record lows against the dollar.

Stocks of public sector upstream companies--Oil and Natural Gas Corp, Oil India Ltd and GAIL (India) Ltd--are likely to remain positive. A fall in crude prices will help these companies as they stock one-third of the revenue losses of the marketing companies on sale of fuels at regulated rates. In a falling crude environment, ONGC gains with a lower contribution to subsidies.

However, with rupee touching a record low of 57.33 for a dollar yesterday and seen weakening further next week, the gains from fall in crude prices are more than wiped out for the oil refiners that import more than 75% of their crude requirement. The price of Indian basket of crude declined to an 18-month low of $90.17 a barrel on Thursday, a fall of nearly 7% since last Jun 15. Meanwhile the rupee had depreciated over 3% since last Friday.
   

Oil Secretary G.C. Chaturvedi's comments today may also weigh on sentiments. Chaturvedi said that any change in the price of regulated fuels--diesel, cooking gas and kerosene--is unlikely before the presidential elections. Presidential polls are scheduled to be held on Jul 19. However, a revival in the rupee or continued decline in crude prices may help oil companies' stocks gain more. Among the three marketing companies Citigroup favours BPCL, mainly because of its exploration and production portfolio.

Reliance Industries may continue to remain weak after partner Niko Resources sharply reduced the proven and probable reserves estimates for KG-D6. However, the company's ongoing buyback of shares at a maximum of 870 rupees per share may support the stock at 690-700 rupees.