Oil Stocks Outlook: No breather next week as crude hits new high

[suguhopes]

NEW DELHI - With oil prices touching new high today after a brief
respite,shares of state-run oil marketing companies are expected to
slip once again into the red next week.

The benchmark contract in the New York Mercantile Exchange today
touched a record intra-day high of $147.20 a barrel after having
slipped to around $136 a barrel earlier this week.

The new ascent in oil prices is fuelled mainly by supply concerns
following renewed threats by Nigerian rebels to attack oil
installations and tensions between Iran and the West after Iran's
missile tests.

"The oil marketing shares had gained immediately as crude prices
softened.But as the crude started surging, these stocks tumbled.

Indian Oil Corp. Ltd. shares today ended 4.7% lower, Bharat Petroleum
Corp. Ltd. lost 8.43% and Hindustan Petroleum Corp. Ltd. shed 3.05%.

Unless oil prices soften substantially, oil marketing stocks will
continue to be under pressure.

"With high oil prices, the outlook on oil marketing companies continue
to remain weak as the government will definitely not go for another
round of price hike as the government is getting into election mode
and inflation is at 13-year high.

Petroleum Secretary M.S. Srinivasan said last week the government had
no immediate plan to go for another round of fuel price hike, despite
surging global crude oil prices.

In the upstream sector, analysts expect Oil and Natural Gas Corp. Ltd.
to recoup the losses next week on expectations of strong quarterly
performance.

"ONGC benefits from higher oil prices as the current subsidy sharing
formula keeps the upstream subsidy burden fixed at 33%.

An ONGC official said the company's subsidy burden during Apr-Mar is
likely to be around 90 bln rupees.

Shares of private oil companies like Reliance Industries and Cairn
India are likely to remain underperformers next week on concerns that
the government might impose windfall profits tax.

Below are Friday's closing share prices, in rupees, of leading oil
companies on the National Stock Exchange, compared with a week
earlier:

Company Closing price Closing price %
Change
Jul 11 Jul 4

Oil and Natural Gas Corp 849.50 876.50 (-)
3.1
Indian Oil Corp 344.75 341.55
0.9
Bharat Petroleum Corp 255.75 229.65
11.4
Hindustan Petroleum Corp 203.55 184.90
10.1
Reliance Industries 2,016.10 2,099.00 (-)
3.9
Cairn India 245.55 251.65 (-)
2.4

Nifty 4049.00 4016.00
0.8
Sensex 13469.85 13454.00
0.1


N.Sukumar
Research Analyst