Friday 02 Jun 2023
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This article first appeared in The Edge Financial Daily on September 26, 2018

KUALA LUMPUR: Oil and gas (O&G) counters on Bursa Malaysia mostly attracted renewed interest yesterday after crude oil prices breached the US$80 (RM331) a barrel level overnight.

The return of interest in O&G shares was reflected by the fact that seven out of the day’s top 15 active counters were O&G-related.

Affin Hwang Investment Bank research analyst Tan Jianyuan said the rising oil prices will boost the O&G sector’s recovery. “The pure upstream players will benefit from it [oil price above US$80 per barrel],” Tan told The Edge Financial Daily. “People are also expecting to see a recovery in terms of maintenance players. We see a lot of MCM (maintenance, construction and modification) contracts being awarded to the players.”

Tan said that jack-up players will also benefit from the higher oil prices although the industry has its own share of problems in terms of the competitive daily charter rates. He noted, however, that the jack-up utilisation rate is likely to have bottomed out. His remarks were in line with the performance of the O&G counters.

Hibiscus Petroleum Bhd closed five sen or 4.42% higher at RM1.18 with 96.7 million shares traded. It was the day’s second most actively traded counter after Sapura Energy Bhd.

Another counter, besides Hibiscus, that is involved in the upstream business is Dagang NeXchange Bhd (DNeX). DNeX’s share price finished unchanged at 39.5 sen yesterday with 12.2 million shares traded, which is higher than its three-month average volume of 6.7 million shares.

Sapura Energy, an integrated O&G services company, was up by one sen or 2.33% to 44 sen with 190.6 million shares changing hands. A month ago, this counter had plummeted, with RM1.08 billion in market capitalisation wiped out, after the group proposed to raise up to RM4 billion via a deeply discounted rights issue to pare down its debt and strengthen its core position for future growth.

Overnight on Monday, the global benchmark Brent crude jumped more than 3% to a four-year high of above US$80 a barrel after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by US President Donald Trump for action to raise global supply. Opec and non-Opec states, including top producer Russia, gathered in Algiers on Sunday for a meeting that ended with no formal recommendation for any additional supply boost to counter falling supply from Iran.

As of writing, Brent crude was up by another 0.75% to US$81.81 per barrel, the highest since 2014 while West Texas Immediate rose 0.54% to US$72.47.

Tan thinks the higher oil price will accelerate work orders in the O&G industry although he expects oil prices to fall slightly below the US$80 level by the end of the year.

Vincent Lau, vice-president of research at Rakuten Trade Sdn Bhd, noted that the market has turned bullish on the O&G sector following the rebound in prices after a lacklustre performance over the last few years. “The market has turned bullish on the O&G industry as the oil price breached the US$80 per barrel level with Opec and non-Opec states rebuffing Trump’s demand for a move to cool the market.

“It’ll take time for the higher oil price to translate into higher earnings for the O&G-related players but it should translate into more work orders, which will be beneficial to the industry,” he said. He pointed out that laggards in the industry such as Straits Inter Logistics Bhd, an oil trading and bunkering company, could benefit from the return of investors’ interest in the industry.

Other O&G-related counters such as Reach Energy Bhd and Bumi Armada Bhd were also actively traded with about 31 million shares and 22.98 million shares traded respectively. While Reach Energy was unchanged at 43.5 sen, Bumi Armada slipped one sen to 53 sen.

Jameel Ahmad, global head of currency strategy and market research at FXTM, shared that the sudden surge in the oil price recently was unexpected. “No one really expected oil to jump so suddenly in recent sessions and I do have some doubts over how long this rally in oil can last. However, investors seem to be buying into the headline on increased optimism that the value of oil can eventually reach US$100.

“I personally remain doubtful on this one, but it is fair to say that investors reacted positively to the resilience of Opec to maintain steady production output despite a continuation of outspoken comments from President Trump in the days before the Opec summit that prices need to fall lower,” he said.

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