The Flavour of Oil ; Valuations of Oil Stocks Are Likely to Greatly Improve in the Long Run. And Then Oil Will Truly Smell Sweet.
Linked as:
Summary
Is it the right time to invest in oil stocks? Let us examine a few facts. India, as a market, has a humungous appetite for oil. However, only 30 per cent of its requirement of nearly 110 million metric tonnes per annum is met by domestic producers. The downstream companies that refine and market crude, thus, have to import a major portion of their requirements. This is hugely expensive, as global crude prices have been ruling at $50-plus (Rs 2,200-plus) for some months now. They then process this crude and sell it at government- determined low prices. Who makes up the deficit? No one. It's a straight hit to their bottom lines. Will the government raise prices? Probably. But it is unlikely to raise them enough to make good the entire loss anytime soon.
Sounds bad? Yes. Does it still make sense to invest in these companies? Yes. Here's why: the current situation cannot go on for ever. Something has got to give. Either global prices will come down (which appears unlikely at present), or the government will have to raise prices. Once the oil companies (particularly the refining and marketing companies) are allowed to sell their products-especially kerosene and LPG-at market-determined prices (or at rates close to them), their bottom lines are likely to improve substantially. The profits of exploration and production major ONGC (Oil and Natural Gas Corporation) will shoot up too as it will not have to share a part of the implied subsidy burden with the refining and marketing companies. Then again, the stocks of most of these companies (with the possible exception of ONGC) are hugely undervalued, and any change in the scenario is likely to improve their valuations considerably. Here's a more detailed look at the oil sector from an investment perspective.See the full content of this document
Extract
The Flavour of Oil ; Valuations of Oil Stocks Are Likely to Greatly Improve in the Long Run. And Then Oil Will Truly Smell Sweet.
Exploration And Production
All over the world, increases in crude prices bring joy to oil exploration and production companies. The scenario is different in India, though. India's biggest exploration and production company, ONGC-also India's most val...See the full content of this document
Sponsored links
