O&G stocks weigh on Bursa

Exploration and production activities seen slowing down

PETALING JAYA: Slumping crude oil prices in the global market are taking the shine off oil and gas (O&G) counters amid growing worries that exploration and production (E&P) activities may slow down and contractors’ margins will be squeezed.

Shares in Sapura-Kencana Petroleum Bhd tumbled 20 sen yesterday to RM3.86, its lowest level in a year. The stock has fallen 18% yearto-date.

Other big losers include Uzma Bhd, down 22 sen to RM3.55; Coastal Contracts Bhd, 19 sen lower to RM4.50; and Dialog Group Bhd, down 11 sen to RM1.66.

“Some of these counters are not directly affected by oil prices, but E&P activities may reduce in the future, so there may be less demand for their services and this is being priced in now,” Etiqa Insurance and Takaful head of research Chris Eng said.

He said that oil players might reduce capital expenditure in the sector, especially for E&P activities in the difficult and rough areas such as shale oil first should prices fall further.

Brent crude futures contract, traded on London’s ICE Futures Europe exchange, fell 78 US cents in early trade yesterday to US$92.01 a barrel.

The benchmark crude oil price for most of Asia and Europe plunged 17.7% from a recent peak of US$113.70 a barrel in June. Meanwhile, in the United States, crude oil futures were traded at US$89.87 a barrel.

Crude oil prices have been hit by increasing supply from around the globe, amid weaker demand growth in major consuming countries in Europe and China.

“Slowly but surely, the market has come to realise that weak demand has been the key reason for the downturn,’’ according to a report by London-based consultancy firm Energy Aspects Ltd.

The sharp drop in O&G prices has contributed to a growing number of mega projects being delayed or shelved.

Petroliam Nasional Bhd said yesterday that it may put off its massive gas project in Canada if it does not receive incentives from the Canadian government.

The O&G industry is also reeling from the recent strengthening of the US dollar, which makes the commodity more expensive to import by consuming countries.

Analysts said the traditional safehaven dollar was likely to enter a renewed upward cycle after the recent consolidation on expectations of a Federal Reserve rate hike and the volatile geopolitical situation in Russia and the Middle East.

The downtrend in the O&G sector is largely in line with the trends seen in resource-linked stocks all over the world, including those listed in the United States and Australia.

Some analysts, however, see the flipside to the declining O&G and resource-linked counters, as cheaper oil will benefit the consumer, automotive and manufacturing industries.

“Yes, there will be lower costs for consumer-linked industries such as the automotive sector, and the Government will benefit from lower subsidies as well. But in the bigger picture, there will be lower overall country revenue from lower oil prices,” said Alliance Research chief economist Manokaran Mottain.