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Oil Stocks Outlook: PSU refiners may rise; Jan-Mar earnings in focus

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New Delhi: Shares of public sector oil refiners and retailers--Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp--may rise next week on the back of robust Jan-Mar earnings posted by Hindustan Petroleum and Indian Oil, and favourable charts, analysts said.

Among the three stocks, the focus early next week will be on Bharat Petroleum as the company will detail its Jan-Mar earnings on Monday. The stock ended 3.1% higher on Friday on hopes of strong earnings, following better-than- expected results posted by its peers.

As per brokerages' estimates, Bharat Petroleum is likely to report a net profit of 17.96 bln rupees, and net sales of 573.92 bln rupees. Analysts peg the company's Jan-Mar gross refining margin at $5.5-$6.5 a barrel. Both Hindustan Petroleum and Indian Oil posted higher bottomlines and GRMs than what analysts had estimated.

Stocks of state-owned upstream players Oil and Natural Gas Corp and Oil India are also likely to be in focus early next week as ONGC reported its Jan-Mar earnings after market hours on Friday, and Oil India is slated to announce its results on Monday.

ONGC shares may witness some negativity in early trade as the company posted a lower-than-estimated bottomline of 43.40 bln rupees, down 6.1% on year. The net profit was lower despite an operationally better quarter as the company had to account for past royalty dues paid to the Gujarat and Assam governments, and provision for pending pay revision of its employees.

The market, however, may react positively to the 57.4% on-year jump in ONGC's crude oil price realisation to $54.91 per barrel in the three months ended December. The price realisation was in line with analysts' estimates. Analysts expect Oil India to report net profit of 5.77 bln rupees, and net sales of 26.02 bln rupees for Jan-Mar. The company's Jan-Mar crude oil price realisation is seen at $53-$54 a barrel, up from $32.6 a barrel in the year-ago quarter and $49.2 a barrel in Oct-Dec.

Shares of oil companies may also be affected by crude oil prices, news flow, and sentiment in the broad market.

Futures contracts of crude oil on domestic and global exchanges are seen recovering next week due to short covering, after prices fell nearly 6% on Thursday.

The slump was despite an extension of output cuts by major producers, analysts said. The Organization of the Petroleum Exporting Countries and other major producers agreed to extend a deal to cut output by 1.8 mln bbl per day until March. Largely, the deal had been factored into the prices. Excessive expectations preceding the meeting are to blame for the slump in crude prices, Commerzbank AG said in a report.

"In the end, expectations had become so high that the mere extension of the status quo by nine months resulted in disappointment," the report said.

According to US Energy Information Administration, crude oil inventories in the US declined by 4.4 mln bbl in the week ended May 19. This may also support prices.

On technical charts, stocks of state-owned refiners are seen in an uptrend, while upstream stocks seem to be in correction mode for next week, said a Delhi-based technical analyst. Bharat Petroleum may face resistance at 780 rupees and find support at 720 rupees. For Hindustan Petroleum, resistance is pegged at 600 rupees, while support is seen at 545 rupees. Resistance for the Indian Oil scrip is seen at 442 rupees and it may find support at 416 rupees.

The ONGC stock may find support at 170 rupees, while resistance is pegged at 180 rupees. For Oil India, support is seen at 300 rupees and the stock my face resistance at 316 rupees.

Any major shift in the dollar-rupee exchange rate may also impact shares of oil companies. If the dollar weakens against the rupee, it could add to the woes of upstream companies.

This is because upstream companies price oil and gas in dollar terms, and a weak greenback leads to a decline in actual price realisation in rupee terms. On other hand, refining companies stand to gain from a weaker dollar, as it would reduce their outgo towards purchase of crude oil and gas.

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

COMPANY CLOSING PRICE CLOSING PRICE CHANGE
May 26 May 19 (in per cent)

Indian Oil Corp 426.05 435.40 (-) 2.15
Bharat Petroleum Corp 749.65 702.45 6.72
Hindustan Petroleum Corp 567.60 521.35 8.87
Oil and Natural Gas Corp 175.75 180.05 (-) 2.39
Oil India 310.30 316.35 (-) 1.91
Reliance Industries 1,337.30 1,318.85 1.40

Nifty 9595.10 9427.90 1.77
Sensex 31028.21 30464.92 1.85

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