Oil Stocks Outlook for the week (14-18.01.2013)

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Stocks of state-owned oil-marketing companies are likely to trade in the positive territory next week, as fuel price hike is imminent, as stated by Minister of Petroleum and Natural Gas Veerappa Moily yesterday. The minister said a decision on revising prices of petroleum products like diesel and cooking gas was expected soon but declined to put any time frame on the exercise. Any increase in prices of subsidised diesel, kerosene, and cooking gas would help in cutting the subsidy burden of state-owned oil companies by bringing the prices of the fuels closer to market rates.
   
Upstream oil and gas companies are also likely to gain in case the government decides to hike fuel prices, as companies like Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd shoulder a chunk of the subsidy burden. We see the oil ministry proposal to gradually increase diesel and kerosene prices, if implemented, as a positive for the PSU oil companies.

However, implementation would be crucial given the Government's social and political compulsions. The oil ministry proposal seeks to raise retail price of diesel by 1.5 rupees per ltr every month until March, and thereafter by 1 rupee every month till the retailers' revenue losses on the fuel are eliminated. It also mooted a hike in kerosene prices by 35 paise per ltr every month until March 2015, or by 1 rupee per ltr every quarter.
   
For subsidised cooking gas, the oil ministry proposes a 130-rupee hike on 14.2-kg LPG cylinder by March. From 2013-14, the remaining losses on LPG could be eliminated by raising prices by 50 rupees per cylinder every quarter, the ministry proposed. The current revenue loss on LPG is 490.50 rupees per cylinder. The oil companies are also seen taking cues from the broad market that would eye companies' Oct-Dec earnings next week and inflation data for December that would be keenly eyed on Monday.

Oil Stocks Outlook for the week: 07 - 11.01.2013

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Stocks of state-owned oil marketing companies may remain rangebound with an upward bias next week, while those of Oil and Natural Gas Corp Ltd and Cairn India Ltd are seen firm. The government talking about its intent to reduce subsidy burden by raising diesel prices will keep stocks prices of Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd firm as the move, when it happens, will be a significant positive for these companies. However, rising crude oil prices and a weak rupee may prevent any significant rise in stocks. Oil minister Veerappa Moily told reporters yesterday that the government is working on deregulating price of diesel, which accounts for most of the revenue losses incurred by oil marketing companies on sale of subsidised fuel.

Last week, the government said it is keen on hiking prices of kerosene by 10 rupees a ltr over the next two years, and increasing diesel prices by the same quantum over 10 months. The price of the Indian crude oil basket firmed up by over a dollar this week to $109.66 a barrel on Thursday while the rupee, which strengthened early in the week, dropped sharply on Thursday and Friday. Continued weakness in the rupee could weigh on stocks of oil marketing companies. Higher crude prices would weigh on the state-owned companies. Among the three companies, BPCL is the better bet because of its promising upstream portfolio. We expect news flow for BPCL to stay supportive in 2013-14 (Apr-Mar) as its consortium drills more exploration and appraisal wells in Mozambique and Brazil and (as) clarity emerges on the E&P resource base and monetization plan in Brazil.

Cairn India stocks may get a boost from the government's approval to raise the output from its Barmer block in Rajasthan to 300,000 barrels per day from 175,000 barrels now. The move will help boost the company's revenues and profitability significantly. It will also be a positive for ONGC, which owns 30% stake in the Barmer block. Cairn as its top pick as it expects it to benefit from higher crude oil prices and volume growth. Stocks of Cairn are trading at a discount to its peers and hence offer value. Stocks of Reliance Industries though may remain in a range with a weak bias. Weak refining and petrochemical margins may prevent any significant upside in the company's stock from current levels but a firm market may prevent much downside.

Oil Stocks Outlook for the week: 31.12.2012 - 04.01.2013

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Stocks of state-owned oil marketing companies are likely to stay firm next week as sentiment will stay positive because the government Thursday said it intends to bring down the revenue loss of these companies by gradually increasing the prices of subsidised fuels. However, gains in the stocks of Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are likely to be limited unless the movement in crude oil prices and the rupee is favourable. Thursday, Prime Minister Manmohan Singh said there was a need to lower subsidies to keep India's fiscal deficit under control. He also advocated phased revision in energy prices. Before that, a senior oil ministry official told reporters that the government is looking to increase prices of regulated fuels in a phased manner.

The government is keen on hiking the prices of kerosene by 10 rupees a ltr over the next two years, and increasing diesel prices by the same quantum over 10 months. If implemented, the hikes will help lower oil companies' revenue losses significantly. At current prices, state-owned oil retailers are losing around 9.3 rupees a ltr on diesel and 30.93 rupees a ltr on kerosene. The price of India's basket of crude oil has remained relatively stable this month at below $110 a barrel. The rupee too regained some strength against the US dollar, ending at 54.7500 a dollar yesterday. Last week friday, the rupee had closed at 55.0600 a dollar. Strength in the rupee augurs well for oil refiners as they meet more than 75% of their crude oil requirements through imports.

The stocks of these three companies will remain in a tight range taking cues from the market, crude oil prices, and the rupee's movement. While not much downside is seen in these stocks, the upside will depend on the beginning of the phased hike in fuel prices. Stocks of private oil giant Reliance Industries are seen weak in the near term, and will rise only if there is sustained upward movement in the market. The company's ongoing buyback of stocks, though not too successful, has prevented the stock from falling. The buyback will end on Jan 19. Reliance Industries' core refining business has come under pressure over the past two months, with refining margins declining globally because of sluggish demand and increase in capacity. Lower refining margins will weigh on the earnings of the company as Reliance Industries earns more than 70% of its revenue from the refining business.

Oil Stocks Outlook for the week: 24 - 28.12.2012

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Stocks of oil marketing companies are expected to trade in a range with negative bias next week as the rupee further weakened against the dollar and crude prices inched up, raising the revenue losses on sale of subsidised fuel. In Apr-Sep, the oil companies incurred revenue loss of around 856 bln rupees. For the full financial year, the figure may top 1.7 trln rupees, which will weigh both on the companies and the government as it fights to contain the burgeoning fiscal deficit. Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd are incurring a loss of 4.11 bln rupees daily on sale of diesel, kerosene and cooking gas. The Indian currency slid sharply yesterday to end below 55 rupees a dollar for the first time since Nov 27.

On the other hand, India's crude oil basket swelled to over $108 a barrel from around $106 last week. However, rising crude oil prices coupled with a weak rupee means better realisation on crude and gas sales in rupee terms, and works in favour of the upstream companies. In a report on Thursday, the market is exaggerating the impact of subsidy uncertainty on Oil and Natural Gas Corp Ltd and Oil India Ltd and thus assigning unwarranted low valuation multiples. A likely weakness in the market may also weigh on stocks of the oil companies. Both, the BSE Sensex and NSE Nifty, fell more than 1% yesterday on concerns over the fiscal cliff issue in US. Also, the markets will be volatile as traders may roll over positions to the January futures series ahead of the expiry of the December futures contract.

Oil Stocks Outlook for the week (17-21.12.2012)

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Stocks of state-owned upstream companies may remain subdued next week on concerns over a likely increase in their stock of subsidy burden on account of revenue loss incurred by public-sector oil-marketing companies on sale of subsidised fuels. Finance Minister P. Chidambaram told Parliament yesterday that state-owned oil and gas producers may have to bear a greater part of the fuel subsidy burden as the government is looking to trim its share in order to curb the widening fiscal deficit. Public-sector oil retailers Indian Oil Corp, Hindustan Petroleum Corp Ltd, and Bharat Petroleum Corp Ltd sell kerosene, diesel and cooking gas at rates lower than the market prices. The revenue loss is then compensated through cash subsidy by the government, discounts by upstream companies Oil and Natural gas Corp, Oil India Ltd and GAIL (India) Ltd, and partly by the oil retailers themselves.

In the first half of the current financial year, public-sector oil retailers' revenue loss on sale of subsidised fuels is pegged at 855.86 bln rupees. For the full year, the revenue loss is seen around 1.7 trln rupees. Usually, the upstream companies stock a third of the revenue loss but over the last few years, the government has raised their burden to almost 40%. A further hike in that portion will reduce their profitability and hence may weigh on the performance of the companies' stocks. Stocks of the oil-marketing companies will continue to track global crude oil prices and the rupee-dollar movement. The Indian currency remained stable against the greenback this week but crude prices increased slightly. Also, refining margins have declined globally over the last few weeks, which will further compress the profitability of refiners. We believes that valuations of BPCL and ONGC are attractive, but medium-term outlook on their core business remains weak.

Oil Stocks Outlook for the week (10-14.12.2012)

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Stocks of the state-owned oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd--as well as private sector refiner Reliance Industries Ltd are seen down next week mainly because of a weak refining environment and a subdued market. Refining margins, after being abnormally high in Jul-Sep because of some unscheduled refinery shutdowns globally, have declined in the current quarter and may have negative implications on the earnings of refiners.

The rupee continues to remain stubbornly over 54 to a dollar. This will mean higher cost of crude for the state-owned refiners who are net importers. Even though crude prices are seeing a softening trend, a weak rupee will weigh on the state-owned companies which sell most of their output at subsidised rates.

BPCL is seen outperforming the other two oil marketing companies due to positive news from exploration and production operations. Also, most of these stocks have tracked the market of late and may continue to do so in the near term. The market is seen subdued next weak as traders are likely to book profits.

Oil Stocks Outlook for the week(03-07.2012)

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 Stocks of state-owned Oil and Natural Gas Corp, and Bharat Petroleum Corp are likely to surge next week while those of index heavyweight Reliance Industries may hold on to gains due to bullishness in the market. Stocks of refining-cum-marketing companies such as Hindustan Petroleum Corp, and Indian Oil Corp are also expected to remain firm as the rupee has strengthened against the US dollar.

The rupee closed at 54.2600 a dollar on friday, up sharply from 55.7300 a dollar Monday. State-owned oil refiners meet more than 75% of their crude oil requirements through imports. Strength in the rupee lowers the price at which they buy crude oil. Monday, ONGC said it had signed an agreement with US energy major ConocoPhillips to buy its 8.4% stake in the Kashagan oilfield in Kazakhstan for $5 bln.

We find the acquisition favourable for ONGC as it entails limited project risk, provides stability to (arm) OVL's (ONGC Videsh) falling production profile, is at reasonable valuations, and reduces risks of a higher subsidy burden. ONGC shares have gained 4.3% since Monday, when the agreement was announced. We believe such acquisitions will use the company's available free cash flow and make a stronger case for lower subsidy burden in (the) future.

Another big gainer this week was BPCL, which has outperformed peers HPCL and Indian Oil due to the valuations of its exploration and production business. Reliance Industries shares have gained 2.6% this week. We see the company's refining business doing well going forward as higher demand for various petroleum products will lead to better margins.

Post revisiting our global refining model, we reiterate our positive stance on refining noting that net refining capacity addition will lag demand growth. Also, low distillate inventories pose upside risks to margins.

Oil Stocks Outlook for the week (26-30.11.2012)

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Reliance Industries stocks are seen weak in the near term because of the headwinds in its core refining business coupled with a downturn in petrochemicals margins. Over the last few weeks, the global complex refining margins have weakened because of shrinking product spreads and increase in supplies. In 2012, 1 mln barrels per day capacity was added globally, and in 2013, another 1.3 mln barrels per day refining capacity will be added. We expect subdued refining margins over the next 12-18 months given our cautious outlook on the refining cycle due to large net additions to global refining capacity and weak oil demand resulting from a global slowdown. Over the past few weeks, the spreads on oil products such as gasoline, diesel, and jet fuel have shrunk significantly, and these products account for 65-70% of Reliance Industries' product basket. Concerns over the continued decline in gas output from the company's KG-D6 block will also weigh on its stocks, but the ongoing buyback of stocks will provide support at around 725 rupees.

Sharp decline in production is worrying. Gas output from KG-D6 has fallen below 26 mscmd now, from a peak of 62 mscmd. Stocks of state-owned oil marketing companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd also are seen subdued following the sharp decline in rupee vis-a-vis the dollar. The rupee has depreciated nearly 4% since the beginning of this month to 55.53 a dollar yesterday. The state-owned oil refiners import over 75% of their crude requirements and a weak rupee will mean higher cost of crude in rupee terms. The rise in crude prices over the past few weeks is adding to the companies' revenue loss on subsidised sale of fuels. Among the OMCs, we prefer BPCL due to its upstream exposure although we maintain our cautious view on its core R&M (refining and marketing) business.

Oil Stocks Outlook for the week (19-23.11.2012)

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With crude oil prices inching marginally higher and the rupee continuing to weaken against the dollar, stocks of state-owned refiners may continue to remain subdued in the near term. Weakening of global refining margins may also put pressure on stocks of the three state-owned oil-marketing companies Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp Ltd. The three companies are estimated to lose 4.12 bln rupees daily, during the fortnight starting yesterday, on sale of subsidised fuels. While the estimated loss is slightly lower than the 4.21-bln-rupee loss they incurred daily in the previous fortnight, the situation is expected to worsen going forward. The fuel retailers' revenue loss for the current fortnight is calculated on the basis of international crude oil and petroleum product prices over the previous 15 days.

The Indian basket of crude reversed its declining trend to gain almost $2 a barrel this week. On Thursday, the Indian basket of crude cost $107.92 a barrel.
At the same time, the rupee fell to 55.16 a dollar yesterday from 54.75 last week. Also, over the last one-month global complex refining margins have weakened because of shrinking product spreads. Structurally refining cycle is expected to remain weak with incremental net refining capacity additions. Additional refining capacity to the tune of 1 mln barrels per day will come up in 2012 and 1.3 mln barrels per day in 2013. Demand for oil products is seen growing by only 800,000 barrels per day in 2012 and 1 mln barrels per day in 2013, putting further pressure on refining margins. This is likely to weigh more on shares of private sector refiners such as Reliance Industries and Essar Oil. Shares of Reliance Industries, which derives almost 75% of its revenues from refining, are seen weak in the near term.

However, news related to developments on further drilling in KG-D6 will continue to dictate the movement in the stocks of Reliance Industries. The company plans to start drilling immediately for developing a new field in KG-D6 after it got the approval of the oil ministry.

Oil Stocks Outlook for the week (12-16.11.2012)

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Stocks of the three state-owned oil marketing companies may continue to track crude prices and rupee-dollar rates in a truncated trading next week, but are seen mostly in range. Stocks of both Indian Oil Corp Ltd and Bharat Petroleum Corp Ltd ended in the red Friday despite the companies reporting profits for Jul-Sep on the back of last minute reimbursement from the government for their revenue losses on subsidised fuels in Apr-Sep. Hindustan Petroleum Corp Ltd reported earnings post market hours and its stocks, too, ended down 2%. Domestic stock market will remain closed on Tuesday and Wednesday for Laxmi Pujan and Diwali Balipratipada, respectively.

BPCL reported a net profit of 50.35 bln rupees for Jul-Sep as it accounted for 72.39 bln rupees compensation from the government in the quarter ended September. Indian Oil also swung to profits in Jul-Sep after it accounted for 160.94 bln rupees as subsidy from government. The company's net profit for the quarter ended Sep 30 stood at 96.11 bln rupees. HPCL reported profit of 23.27 bln rupees on account of 66.67 bln rupees received from the government for selling fuels at regulated rates.

The rupee meanwhile declined this week to end at 54.75 to a dollar from 53.81 last week. Rupee depreciation adds to the burden of oil marketing companies making crude relatively costlier as it is priced in dollars. India's basket of crude oil has, however, remained stable at around $106 a barrel.

Stocks of Reliance Industries may remain subdued following another round of allegation against the company and its promoter Mukesh Ambani by anti-corruption crusader Arvind Kejriwal. Kejriwal Friday alleged that Reliance Industries and Ambani had stashed unaccounted money in Swiss banks. The allegations were refuted by the company in a statement later. However, the allegations caused a sharp fall in the company's shares and may continue to weigh in the near term as Reliance Industries is also facing allegations of overstating costs for its KG-D6 block.

Oil Stocks Outlook for the week (05-09.11.2012)

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Stocks of Reliance Industries Ltd may continue to remain range- bound, with negative bias, as the allegations of the company overstating costs for its KG-D6 block resurfaced and noise for a probe by the Comptroller and Auditor General is gathering pace. According to reports that came after market hours, the country's top auditor has pulled up the oil ministry for agreeing to conditions set by Reliance Industries over the proposed KG-D6 audit. Further development on this front will be eyed next week and if the oil ministry agrees to a comprehensive audit of KG-D6 by the CAG. CAG has written to the oil ministry saying that it should have been consulted before the ministry made commitments to the company on the audit of its once-promising block.
   
The company was initially opposing the audit on grounds that it is a private sector company but had later agreed to a cost audit after the oil ministry under S. Jaipal Reddy said that it will not approve the company's development plans for the block unless the audit is allowed. However, Reddy was replaced by Veerappa Moily as oil minister earlier this week, leading to allegations that the government succumbed to pressure from Reliance Industries.
   
Anti-corruption crusader Arvind Kejriwal attacked the government this week suggesting that Reliance Industries was deliberately keeping the output from the block low to force the government to hike prices. The state-owned oil marketing companies will track crude oil prices and rupee-dollar exchange rates but the trend is seen broadly positive. Crude oil prices have remained stable around $107 a barrel over the last week while the rupee too is holding below 54 for a dollar.

Oil Stocks Outlook for the week (29.10.2012 - 02.11.2012)

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Stocks of state-owned oil marketing companies may remain subdued next week as investors will wait for the Reserve Bank of India's policy review Tuesday, and for companies' Jul-Sep earnings. The market trend will dictate the movement in stocks of Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp. If global prices of crude oil stay on their downward trajectory, and the rupee remains stable against the US dollar, these shares could see some upside. After declining sharply to 53.8400 a dollar last week, the rupee recovered this week and ended at 53.5600 a dollar yesterday. The price of the Indian basket of crude oil declined by almost $3 a barrel from last week to $107.33 Thursday.
 
The three companies will detail their Jul-Sep earnings early November. Stocks of upstream companies--Oil and Natural Gas Corp, Oil India, and GAIL (India)--are likely to remain muted before the companies' release their Jul-Sep earnings. Stocks of Reliance Industries may continue to face downward pressure amid weakness in the market. If the RBI cuts the repo rate or the cash reserve ratio, the trend in the market may turn bullish, which could boost the company's stocks.

Oil Stocks Outlook for the week(22-26.10.2012)

Stocks of state-owned oil marketing companies are likely to remain subdued next week as the focus shifts to companies announcing earnings for the quarter ended September. Shares of Cairn India, which will detail Jul-Sep earnings on Monday, are expected to remain firm next week with the company likely to report robust growth in sales and profit.

Cairn India's consolidated net profit for Jul-Sep is likely to see a near four-fold rise year-on-year to 28.02 bln rupees, on the back of higher production and improved realisations due to sharp depreciation in the rupee.

All the three retailers Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp--will report their Jul-Sep numbers in November. Their shares will take cues from the movement in crude prices and rupee-dollar exchange rate. The Indian currency fell sharply this week to 53.84 a dollar from 52.80 last week. Continued weakness in the rupee may lead to decline in the shares of the three state-owned oil companies, as it makes their crude imports costlier.

The companies import over 75% of their crude oil requirements. India's crude oil basket softened slightly this week, but it continues to hover over an uncomfortable $111-a-barrel level. Reliance Industries reported gross refining margin of $9.5 a barrel in Jul-Sep, up from $7.6 in the previous quarter.

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Oil Stocks Outlook for the week (15-19.10.2012)

Reliance Industries Ltd will be in focus next week as it will detail its earnings for the quarter ended September on Monday while stocks of oil marketing companies are likely to take cues from the rupee-dollar movement and crude oil prices next week. Reliance Industries is expected to report a 6% year-on-year decline in net profit for Jul-Sep to 53.67 bln rupees even as revenue may grow 20% to 940.42 bln rupees. The market will be keenly watching the company's gross refining margin and outlook for gas production from the KG-D6 block. Also, the company's likely participation in the auction for 2G spectrum is seen as a negative. Reliance Industries has not yet officially confirmed such move. Reliance Industries is expected to report a sharp sequential improvement in gross refining margin to $9-$10 a barrel, in line with the global trend. Earnings will be a key factor in deciding the near-term movement in Reliance stocks.

The market is of the view that Reliance Industries may surprise positively in terms of refining margin in Jul-Sep and that will take the stocks up to 850 rupees in the near term. However, lack of visibility on any improvement in KG-D6 prospects may weigh on the stocks. Morgan Stanley recently downgraded the stock saying it is turning cautious because of unattractive valuations, especially because they believe the core business will remain under pressure. Lack of near-term triggers and likely weakening of refining environment. The oil marketing companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd are seen in a range in the near term, though crude prices and rupee-dollar movement may lead to sharp reactions. The rupee, which regained its strength against the dollar following a spate of reforms announced by the government, fell again this week. Yesterday the Indian currency ended at 52.80 a dollar compared with 51.85 last Friday.  Crude oil prices also rose by over $2 a barrel this week. Both these factors as well as the market trend will continue to guide stocks of the state-owned oil companies next week.

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Oil Stocks Outlook for the week (08 - 12.10.2012)

Stocks of oil marketing companies are seen up in the near term due to the fall in crude oil prices and the firm trend in rupee against the dollar. However, the broad market trend may continue influencing the movement in stocks of the state-owned oil marketing companies Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd. The rupee has regained its strength against the dollar following a spate of reforms announced by the government over the last few weeks to attract foreign capital. The Indian currency ended at 51.85 a dollar yesterday, up from 52.85 a week ago. The Indian unit has recovered from a low of nearly 56 rupees against the dollar in early September. As oil marketing companies import over 75% of their crude oil needs, any gain in the Indian currency reduces their import bill in rupee terms. The Indian basket of crude risen by almost $3 this week to $107.76 a barrel on Thursday.

The financial performance of oil companies is seen improving following the hike in diesel prices, and the cap on number of subsidised cylinders of cooking gas per family can avail. The move will beef up these companies' margins, as it will trim their revenue losses, and thereby lower their interest cost on short-term borrowings. State-owned oil marketing companies' daily revenue loss on sale of subsidised fuels is expected to have declined 12% to 4.37 bln rupees for Oct 1-15 because of lower crude oil prices and stronger rupee. The revenue loss on sale of diesel has fallen to 11.65 rupees per ltr from 13.86 in the preceding fortnight. Improvement in gross refining margins globally will also help the refiners improve their bottomline. Refiners (are) poised for a good Q2FY13 (Jul-Sep). Reliance Industries stocks also are seen firm in a positive broad market but may weaken on profit booking if the market slows down. We believe refining strength will likely lift margins and drive earnings over the medium term.

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Oil Stocks Outlook for the week: 01.10.2012-05.10.2012

Stocks of state-owned oil marketing companies, Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp, are seen rangebound with a positive bias next week amid a likely positive market and a firm rupee. The rupee gained sharply against the dollar this week, and is expected to further consolidate its position in the coming sessions, trading in the 52-53 rupees a dollar range.

As oil marketing companies import over 75% of their crude oil requirements, gains in the Indian currency reduces their import bills in rupee terms. According to an oil company official, a 1-rupee decline in the value of the dollar is equivalent to a 3-dollar decline per barrel of crude. The price of Indian basket of crude has remained stable this week around $109 a barrel.

However, there are concerns due to delay in government compensation for subsidised fuels--diesel, kerosene and cooking gas, which has resulted in an increase in borrowings and hence interest costs.

We expect the earnings of downstream oil companies to decline in the current year led by lower refining margins, rising interest cost due to delays in receipt of cash compensation from the government and volatility in crude oil prices and exchange rate. The recent hike in diesel prices and the cap on the number of subsidised cooking gas cylinders a family can buy has created a positive sentiment towards the sector and that may continue to reflect in the stocks' performance.While this is a short term relief, the longer term pain of high UR (revenue losses) remains. The URs are expected to be 1.7 trln rupees despite these measures.

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Oil Stocks Outlook for the week (24-28.09.2012)

Stocks of oil marketing companies are likely to remain range-bound next week taking cues from the dollar-rupee movement and crude oil prices as well as the trend in the broad market. The rupee gained sharply this week following the decisions on allowing foreign direct investment in multi-brand retail and permitting foreign airlines to a pie in the India sky. Yesterday, the Indian currency ended at 53.45 for a dollar, almost 1.6% stronger than a week ago.

Crude prices too have softened significantly with the Indian basket costing $106.74 on Thursday, or 8% cheaper than the previous Friday. The development is significantly positive for the state-owned oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--as it will reduce their revenue losses on subsidised sale of fuels such as diesel, kerosene and cooking gas. However, the broad market is expected to consolidate next week because of profit booking after the recent gains. Expiry of September futures and options contract may cause some volatility in the markets.

Stock of Reliance Industries too may remain in narrow range, but will track the broad market more closely. Fundamentally the environment has not changed much for the company and most of the recent gain in its stock has been because of the positive market sentiment following measures announced by several central banks globally to boost the economy. On the positive side, refining margins have shown some improvement in recent weeks because of tighter supplies following refinery
shutdowns across the world. Refining being the company's largest business, Reliance Industries will benefit from rise in GRMs.

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Oil Stocks Outlook for the week: 17.09.2012 - 21.09.2012)

Stocks of oil marketing companies are likely to remain in a range with positive bias next week, taking cues from the government's stand on the fierce opposition to Thursday's hike in diesel prices and cap on number of subsidised cooking gas cylinders. Shares of oil companies ended in the red yesterday, after rallying significantly in early trade on profit booking and fear that the outcry against the decision may force the government to roll back the measures.

Moreover, the decision to hike diesel price hike by 5 rupees per ltr will ease only a small portion of the burden on oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd. Almost 30% of the benefit that will accrue will be pocketed by the government.

We see the government's decision as a moderate positive for the Government-owned oil companies. Thursday's 5-rupee hike in diesel prices includes 1.50 rupees on account of increase in excise duty. Also, revenue losses for the current financial year remain very high at an estimated 1.67 trln rupees at current crude prices.

Post this action on duty tinkering and price increase effected by the government, the scenario, although improving at the margin, remains grim considering the under recovery for FY13. However, the sentiment for oil companies' shares will be positive with little downside risks from current levels as the broad market is expected to rally next week following today's announcement on opening up the aviation sector to foreign airlines and allowing foreign direct investment in multi-brand retail.

Among the three companies, the maximum upside is seen in HPCL because of the high discount it is getting among peers. BPCL is seen the next best bet both
because of its better financial condition and lucrative upstream portfolio.

The decision to divest government's stake in some public sector companies will be a positive for government-owned companies. Shares of upstream and midstream companies like Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd are seen in the positive territory next week.

Reliance Industries shares are expected to gain next week in line with the broad market trend. The recent improvement in refining scenario and an improvement in outlook on its exploration business will further aid the company's shares.

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Oil Stocks Outlook: 10-14.09.2012

Stocks of the three state-owned oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd--as well as of the upstream companies are seen subdued this week after the oil minister last saturday dashed hopes of an rise in prices of subsidised fuels. With the price of Indian basket of crude oil rising to $113 a barrel and the Indian currency holding strong over the 55-for-a-dollar mark, the revenue losses on subsidised fuels--diesel, kerosene and cooking gas--have soared in the current financial year. Even on petrol, a deregulated fuel, the oil marketing companies are incurring a loss of 6 rupees per litre. The Street was abuzz with talks that prices of diesel and petrol are likely to be raised next week, as the monsoon session of Parliament ended last saturday. However, Minister of Petroleum and Natural Gas S. Jaipal Reddy ruled out any immediate hike in prices of fuels, including petrol, despite acknowledging that the public sector oil retailers are facing tremendous crisis of unprecedented magnitude.

Diesel, cooking gas, and kerosene prices have not been revised since June last year. The three state-owned refiners may lose around 2 trln rupees on the subsidised fuels in 2012-13 (Apr-Mar) at the current level of crude and fuel prices. The upstream companies--Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd--have to share 33-40% of the revenue losses of the marketing companies and thus the increase in these losses will hurt their finances too. The global refining scenario continues to remain weak because of subdued products demand in the US and European Union, and weak economic growth in China and India. That will further add to the woes of IOC, HPCL and BPCL, Overall, we believe the refining industry to remain challenging going ahead.

Keeping in view our outlook of weak refining margins, we do not see major uptrend in refining stocks in the foreseeable future. However, there is still some hope that the government may consider a small hike in the latter half of this week. If that happens, there will be a significant upside in the shares of the marketing as well as upstream companies. If the government increases diesel prices then it will be positive for OIL India, ONGC and OMCs (oil marketing companies). Despite the weak outlook on the refining segment, Stocks of the country's largest refiner, Reliance Industries, are seen trading in a range with upward bias this week. A combination of this growth (in profits), benign consensus expectations, below average valuations and buyback support makes us believe that the under-weight trade on Reliance is over.

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Oil Stocks Outlook for the week (03.09.2012-07.09.2012)

Stocks of state-owned oil marketing companies are seen slightly up next week, while Reliance Industries is seen rangebound with a positive bias. Stocks of Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are seen recovering after falling sharply this week. But the extent of recovery will depend on the market, which is expected to take cues from US Federal Reserve Chairman Ben Bernanke's speech today at Jackson Hole.

Though crude oil prices eased slightly this week, with the Indian basket down almost $2 from last Friday to around $111 a barrel on Thursday, the situation of state-owned refiners remains critical as revenue losses on subsidised fuels continue to mount.

We remain cautious on concerns of burgeoning oil subsidy burden, due to higher oil prices and INR (rupee) depreciation.With chances of any hike in prices of diesel, kerosene, and cooking gas bleak, the companies may continue so suffer revenue losses throughout the year and may have to borrow heavily from the market at high costs to meet their expenses. Usually, the government compensates the retailers by the end of a financial year but the heavy short-term borrowing results in high interest costs and reduces profitability. Morgan Stanley added that it prefers BPCL among the three companies because of its global upstream portfolio which has good prospects.

The recent report by the Comptroller and Auditor General criticising ONGC for misreporting its exploration successes and inability to run an efficient exploration programme may continue to weigh on the company's stock. Following the CAG report, HSBC Global Research maintained its neutral rating on the stock with a price target of 300 rupees saying "the overall conclusions drawn by the CAG are mixed in nature--mostly justified but a few are over-critical."

Reliance Industries stocks are seen rangebound in the near term because of the expected weakness in global refining sector. But because of the decline in stock for two consecutive weeks, the bias is seen positive on value buying.

(www.rupeedesk.in)