Crude oil cheer

The rising price of crude ahead of Opec’s first cut buoys oil and gas penny stocks

PETALING JAYA: There is a party going on in Bursa Malaysia, and the sector being extolled is the once-beleaguered oil and gas (O&G) sector.

Over the last few days, O&G stocks on Bursa Malaysia have seen some buying interest, buoyed by higher oil prices from expectations of tighter supply once the first output cut deal between the Organisation of the Petroleum Exporting Countries (Opec) and non-Opec producers in 15 years takes effect this Sunday.

Brent crude oil and WTI crude oil have rallied by some 25% since mid-November on expectations of this historic deal draining out a cumulative 1.8 million barrels of oil inventories for a total global production cut of 2%.

Opec produces a third of the global oil, or around 33.6 million barrels per day.

As of 5pm yesterday, Brent crude oil was up one cent to US$56.23, while WTI crude was down 22 cents to US$53.84.

However, the O&G heavyweights were not moving up yet. Instead, actively traded on Bursa Malaysia were O&G penny stocks such as Hibiscus Petroleum Bhd, Perisai Petroleum Teknologi Bhd, Sumatec Resources Bhd, Borneo Oil Bhd, KNM Group Bhd and Reach Energy Bhd warrants.

Hibiscus has been steadily climbing over the last three months. Its share price has now almost doubled from the 20-sen level in October. Hibiscus closed the day up one sen to 41 sen.

Even Practice Note 17 company Perisai has almost doubled its price, and only within a month. As at end-November, the stock was trading at the five-sen level. The stock closed unchanged at nine sen and was the most actively traded counter of the day.

“With the recovery in oil prices, the oil producers will start moving first. Once these stocks have plateaued, then interest will turn to the service providers,” said one observer.

Hibiscus and Reach Energy are seen as having direct exposure to oil production.

SapuraKencana Petroleum Bhd, although not a producer of oil, is considered the bellwether of the Malaysian O&G sector due to its sheer size as a service provider and engineering company.

“You won’t see the earnings of the Malaysian O&G service providers turn around just yet. The excesses and consolidation will still have to take place in 2017. The industry as a whole will only recover over the next 12 to 18 months,” added the observer.

On Nov 30, Opec and non-Opec producers amazed scoffers by agreeing to have their first production cut in eight years. The deal also included Opec’s first coordinated action in 15 years with non-member Russia.

Some people are starting to feel that the rise in oil prices can be sustained at the US$60 level as globally, the oil majors have started reinvesting.

This is a sign that after two years of pain, the experts are seeing a bottom, and hence, the revival is beginning.

Then, of course, there is Saudi Arabia’s state oil producer Saudi Aramco, which feels “comfortable” that by 2018, oil prices would have recovered and market conditions would be right for what could be the world’s largest public listing.

Aramco, estimated to be worth about US$2.5 trillion, is expected to list around 5% of its equity.

Even after this recent rally, oil prices remain at about half their mid-2014 levels, when prices began to collapse, reaching a low of US$27.10 on Jan 17 this year. Historically, Brent crude oil had reached an all-time high of US$145.61 in July 2008.