Oil Stocks Outlook for the week – 26 to 30.09.2016
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Shares of retailers seen trading range-bound
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Next week, stocks of state-owned oil refining companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd--are seen trading positively, albeit within a range. With refining margins improving globally and strong fundamentals in the domestic market, these stocks are likely to continue with the positive momentum in the near term, despite some minor correction and consolidation intermittently. Over a longer term, Indian Oil is the preferred pick for most analysts. They expect India's largest oil retailer to be the biggest beneficiary of the continuous rise in domestic demand for petroleum products. The company offers advantage of scale in refining, petrochemical and marketing business, and its new projects will improve efficiency. In the absence of any other major triggers, the trend for oil companies over the next few sessions will be determined by the movement in crude oil prices and sentiment in the broad market. Crude oil futures on domestic and global exchanges are seen falling, as market participants are cautious ahead of a meeting of major oil producers next week. The Organization of the Petroleum Exporting Countries and other oil producers are meeting next week in Algiers to discuss ways to stabilise the market, including a freeze on output. However, high levels of crude oil production by OPEC countries such as Saudi Arabia and Iran indicate that a deal to freeze output may be unlikely. The meeting next week is expected to end without any result. The global bank also cautioned that prices could fall due to "high net long positioning" of investors. Crude oil exports from Libya, too, could increase after the country re-established control over its oil ports seized by militants. A decline in oil prices would be a negative for upstream companies such as ONGC, Oil India and Cairn India Ltd, but a positive for downstream companies, and may impact the stocks accordingly. Despite the weakness in crude oil prices, stocks of upstream companies appear to be positive on the charts. Among upstream companies, ONGC is the preferred pick, as most analysts believe that its valuations are cheap. Fluctuation in the dollar-rupee exchange rate is also likely to affect the shares of oil companies. If the dollar strengthens against the rupee, it will hit refining companies and benefit upstream players. A weak dollar, on other hand, is advantageous for downstream companies
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