O&G stocks on Bursa post recovery gains

Market reacts to Opec+ decision to increase production cuts

PETALING JAYA: Oil & gas (O&g)-based stocks on Bursa Malaysia made some recovery gains following the positive sentiment in the international market.

This happened as Brent crude oil continued to trade above the psychologically important US$40 level on the international markets although some profit taking was evident in the latter part of the day yesterday.

Analysts said sentiment was aided by and reacted positively to Opec+ members’ decision to increase production cuts in July by 25% to 9.6 million barrels per day (bpd) and adopt stricter compliance measures.

Among the more actively traded O&G stocks yesterday were Bumi Armada Bhd that rose 0.5 sen to 26 sen, Velesto Energy Bhd that ended the day unchanged at 17 sen and Sapura Energy Bhd that remained unchanged at its close at 10.5 sen.

Index-linked O&G stocks that recorded gains were Petronas Dagangan Bhd which added 54 sen to RM22.44 and Petronas Chemicals Bhd that rose 19 sen to RM6.89.

Maybank Research said in its report that the steps taken by the Opec+ cartel is a major positive for the O&G industry while OCBC Bank Research said it anticipated the oil market to enter a supply deficit by October.

“The production cuts are one month earlier than if Opec+ had stuck with its original schedule. The crude oil market is expected to experience a sharp supply deficit in the late fourth quarter, when demand may reach within 3% of pre-covid 19 levels but if Opec+ still keeps to its original supply schedule,” it said.

OCBC Research said this anticipated supply stress may prove short-lived when 2 million bpd of supply returns from January 2021.

“We now estimate Brent crude oil to finish 2020 prices close to US$50 per barrel,” OCBC Research said.

At press time, Brent crude oil remained above US$40 per barrel with wire reports stating that the easing of coronavirus lockdown measures around the world had raised hopes for a swift recovery in demand.

Gains were, however, capped by persistent oversupply that is still present in the market.

Public Invest Research, meanwhile, said in a report that markets have likely priced in the reopening of economies into oil prices.

It noted that crude consumption has not returned to pre-lockdown levels.

“As the vaccine for Covid-19 has yet to be found, consumer sentiment and spending will remain relatively subdued. Moreover, if oil prices continue to edge up, questions will grow as to how fast shutdowns in US production will be turned back on,” Public Invest Research said.

It had maintained its “neutral” stance on the O&G industry for the time being.

Maybank Research, which had an unchanged positive call on the O&G industry, said the latest policy revision by Opec+ would help strengthen and accelerate the collective effort to correct imbalances in the oil market.

This, it said, would give the cartel the flexibility to meet production cuts pledged while at the same time providing a strong support to oil prices. “We do not rule out further or deeper cuts beyond July, should the need arise,” it said.

Maybank Research said the worst is over for the O&G sector, noting that three variables in motion – supply being cut, demand rising and oil price – is recovering.

“Normalising global demand remains key. It will only materialise if a cure or vaccine for Covid-19 is developed and launched quicker than anticipated,” it said.