Bullish view on O&G stocks
Share prices of such counters rising along with crude oil prices
PETALING JAYA: The price of Brent crude oil, the global benchmark, hit a 26-month high on fresh supply worries worldwide, fuelling investor appetite for shares in local oil and gas (O&G) players.
The share price of Sapura Energy Bhd, the biggest O&G contractor by market value on Bursa Malaysia, climbed five sen, or 3%, to RM1.71 – its highest level in three months.
Other oilfield service providers such as Carimin Petroleum Bhd and Petra Energy Bhd also rallied.
The market is hoping that the rising price of crude oil will spur oil majors, including Petroliam Nasional Bhd, to increase spending on new projects, although margins are likely to remain tight amid tough competition for new contracts.
Azim Faris Ab Rahim, who tracks O&G stocks at BIMB Securities, said he prefers exposure in oil-producing companies rather than service providers to profit from the current uptrend in global crude oil prices.
“They (the oil producers) are the direct beneficiary of the rising crude prices,” he said.
Sapura Energy derives a portion of its income from the production of oil, but Azim said Hibiscus Petroleum Bhd looks like a winner. The independent oil exploration and production company owns the Anasuria field in the United Kingdom, which produces an average of 3,500 barrels a day.
Hibiscus, according to Public Investment Bank in a recent report, will be completing the acquisition of a stake in a production sharing contract in Sabah by the end of the year.
Shares in Hibiscus rose 3.5 sen, or 5.6%, yesterday to 66.5 sen.
The price of Brent crude oil climbed above US$59 a barrel on Monday for the first time since July 2015 after Turkey threatened to shut down the oil export pipeline from the landlocked Iraqi enclave of Kurdistan in response to the region’s independence referendum.
The oil futures contract has gained more than 13% this month on forecasts of rising crude demand worldwide, while members of the Organisation of the Petroleum Exporting Countries (Opec) maintain production cuts to drain a global glut.
The effect of Opec’s curbs could be amplified if the outcome of the Kurdish region referendum provokes a political crisis, threatening more than 500,000 barrels a day of shipments to global markets.
The potential loss of this supply, combined with the 1.8 million barrels per day of supply cuts by Opec and non-Opec producers, has raised concerns of tighter supply.
Meanwhile, Reuters reported that top oil executives gathered at the S&P Global Platts APPEC conference in Singapore said strong oil demand this year was accelerating market rebalancing and helping inventory drawdowns.
“Global demand growth is way higher than what we have observed in the last couple of years, coming somewhere close to 1.6 to 1.7 million barrels per day and is driven by distillates,” said Janet Kong, BP’s chief executive officer, supply and trading, Eastern Hemisphere.
Opec and non-Opec producers meeting in Vienna last week said the market was well on its way towards rebalancing.
However, other analysts were sceptical about further price gains due to higher oil output from the United States.
The US Energy Information Administration said production from wells in shale formations would rise for a tenth month in a row in October.
US shale producers’ ability to ramp up output as later-dated crude prices strengthen would keep price volatility low, said Jeffrey Currie, Goldman Sachs’ head of global commodities research.