OIL AND GAS STOCKS

RALLY ON MOVE BY OPEC TO CUT PRODUCTION

OIL and gas (O&G) stocks rallied yesterday after Organisation of the Petroleum Exporting Countries (Opec) agreed on Wednesday to cut output for the first time in eight years.

Among the gainers were Deleum Bhd, Dayang Enterprise Holdings Bhd, UMW Oil & Gas Corp Bhd, Sapura-Kencana Petroleum Bhd and Uzma Bhd.

Leading the pack was Deleum, with the counter jumping 10.5 sen, or 12.8 per cent, to 92.5 sen, with 4.97 million shares traded.

Crude oil prices steadied around US$53 (RM236.90) a barrel yesterday, holding on to big gains made after Opec and Russia agreed to restrict production.

In the meeting, Opec members agreed to cut oil output by almost 1.2 million barrels per day from January to June next year.

Kenanga Investment Bank Bhd is positive on the Opec deal.

“This will boost the near-term sentiment, serving as a fresh catalyst to the local O&G sector after a disappointing third-quarter results season, with disappointment ratio increasing to 56 per cent from 50 per cent compared with the last quarter,” it said.

The firm said the actual execution of the agreement was the key to sustainability of oil prices, which would eventually translate into a meaningful recovery of the sector in terms of higher spending and investments.

“Furthermore, we do not discount the possibility that market could refocus back on a revival of United States shale gas production, evident by the continuous rebound of US rig counts,” it added.

Maybank Investment Bank Bhd (Maybank IB), on the other hand, said for service providers, the ultimate aim remained unchanged — which was to ride the cyclical downturn.

“Service providers must be lean and resilient, and manage risks. Cost cuts, cash flow management, debt restructuring, asset impairment exercises and assets divestments are priorities over the next 12 months,” it said in a note yesterday.

Maybank IB said Opec members would meet again on May 25 next year.

It said the strength of the deal would depend on whether all parties delivered their commitments for there had been a few false starts in the past.

“An increase in crude oil prices from the current levels will make the planned output cut feasible, benefitting all parties.”

However, some analysts were sceptical whether the Opec cut would provide a long-term boost because it did nothing to address weak demand.

They also cautioned that the momentum might be shortlived, given that some of the counters had rallied to dizzying heights of late.