Oil Stocks Outlook for the week – 11 to 14.08.2014

Oil Stocks Outlook for the week – 11 to 14.08.2014


Stocks of state-owned oil marketing companies are likely to track Apr-Jun results next
week but the rupee-dollar movement and geopolitical developments in Iraq and Ukraine
will continue to have a bearing.

Hindustan Petroleum Corp will detail its Apr-Jun earnings on Monday followed by
Bharat Petroleum Corp and Indian Oil Corp on Tuesday. All three companies may report
profits for the quarter as the finance ministry has approved the subsidy payout.The
finance ministry had agreed to provide 110 bln rupees subsidy to these companies for
Apr-Jun, which though lower than 131.44 bln rupees sought by the oil ministry, will be
enough to cover up losses.

The three companies together incurred a total revenue loss of 286.91 bln rupees on sale of
subsidised fuels during Apr-Jun.The oil ministry has already asked state-owned upstream
oil and gas companies and GAIL (India) to bear subsidy burden of 155 bln rupees in AprJun.
This will leave the oil marketing companies to absorb only around 21 bln rupees of
revenue loss in Apr-Jun and hence report some profits on net basis.

On the other hand, the rupee has been very turbulent over the last few weeks and may
continue like that in the near term. Oil companies are huge importers of crude oil and
hence the volatility in the Indian currency has an impact on their earnings and hence
stocks. A depreciation in the rupee from current levels may weigh on these stocks.
Meanwhile, tension between Russia and the West has escalated further with the former
banning import of food products from Europe and US after the two imposed further sanctions on the country.