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Informist, Friday, Jan. 3, 2025

MUMBAI – In the absence of major triggers, oil stocks are likely to move in a tight range next week, derivatives analysts said. The performance of oil stocks will largely depend on global crude oil prices and the exchange rates, especially for oil marketing companies, a research analyst tracking the sector at a domestic broking firm said. However, the medium-term outlook for the sector is improving and analysts expect the earnings of oil players to improve for the December quarter, particularly for oil refiners.

Crude oil is a key raw material used by refiners and any surge in its prices could hit their profitability. On the other hand, a rise in crude oil prices could lead to higher revenues for oil producers. Crude oil prices saw major volatility in 2024 owing to the increased geopolitical tensions in West Asia. However, prices eased on hopes that the global supply of the commodity may not be affected due to the conflicts between Israel and Iran and between Russia and Ukraine. Russia and Iran are major crude oil producers and any disruption in their production could affect global oil supply. India is a net importer of crude oil and Russia meets about 35% of its demand.

The analyst said he is bullish on the sector on strong demand from China, which is the world's largest importer of crude oil. The country's President Xi Jinping has pledged to implement more proactive policies to promote the economy's growth this year. Demand from China could lead to an uptick in prices of crude oil, which is good for upstream oil companies, the analyst said.

Fitch Ratings anticipates the refining margins of oil marketing companies to recover to their mid-cycle levels in the financial year 2025-26 (Apr-Mar), as the regional oversupply eases and Brent Crude prices fall in line with expectations. At 1828 IST, Brent Crude futures on the Intercontinental Exchange were down 0.1% at $75.86 per barrel.

Oil producers such as Oil and Natural Gas Corp. and Oil India have strong balance sheets, but their upstream profits will ebb due to subdued production and lower crude oil prices, Fitch said in its report. The capital expenditure of these companies is expected to remain higher as they attempt to expand upstream production and invest in their downstream subsidiaries, it said.

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Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

US$1 = INR 85.77

Reported by Anjana Therese Antony

With inputs from Akshay V. Johnson
Edited by Rajeev Pai

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