Crude posts strongest opening to year since 2014

KUALA LUMPUR: Oil prices yesterday posted their strongest opening to the new year since 2014, rising to mid-2015 highs amid anti-government rallies in Iran and supply cuts led by Organisation of the Petroleum Exporting Countries (Opec).

According to a Reuters report, United States West Texas Intermediate crude futures were at US$60.63 (RM243) a barrel at 3.45pm Malaysian time, up US$0.21, or 0.4 per cent, after hitting US$60.74 earlier in the day, the highest since June 2015.

Brent crude futures, the international benchmark, were at US$67.18 a barrel, up US$0.31, or 0.5 per cent, after hitting a May 2015 high of US$67.29 a barrel earlier.

It was the first time since January 2014 that the two crude oil benchmarks opened the year above US$60 per barrel.

Any increase in crude oil price may prompt analysts to upgrade the oil and gas sector to “positive” from “neutral”.

“We may upgrade the sector if the visibility improves for a faster pace of upstream capital expenditure rollouts, which ultimately hinge on higher crude oil price sustainability,” said AmInvestment Bank in a note yesterday.

It said the recovery was a milestone as there were concerns over the acceleration of shale production in the US.

The firm said higher oil price sustainability was the key to a sector upgrade.

AmInvestment said catalysts for the upgrade would be a stronger global economy, deteriorating geopolitical tensions in the Middle East and West Africa, and growth constraints to US oil production.

AmInvestment has maintained its crude oil price projection of US$55US$60 per barrel this year. As a comparison, the US Energy Information Administration projects crude oil price at US$57 per barrel this year.

AmInvestment’s top picks are Dialog Group Bhd and Yinson Holdings Bhd.

It said Dialog’s earnings visibility was secured largely by the Pengerang Deepwater Terminal project, while Yinson’s Ghana floating production, storage and off-loading vessel project would provide earnings momentum over the next two years.

“We maintain a ‘hold’ for Petronas Gas Bhd due to the implementation of the incentivebased regulatory tariff setting mechanism this month.”

It also has “hold” calls for Sapura Energy Bhd, MISC Bhd, Bumi Armada Bhd and UMW Oil & Gas Bhd.