Bursa Energy Index
Oil and gas stocks in focus as investors shift attention from healthcare
PETALING JAYA: There seems to be much renewed interest in the oil and gas (O&G) sector as investors shift their focus from healthcare stocks, which have been a huge favourite due to the coronavirus (Covid-19) pandemic.
O&G counters dominated the historical trading day which saw a record high volume of shares traded on Bursa Malaysia.
Components under the Bursa Energy Index saw an all time high of 3.9 billion shares traded, which made up 34.75% of the record number of 11.21 billion shares traded on the local bourse yesterday.
Even before the midday break yesterday, there were already around 2.5 billion shares that exchanged hands in the morning trade.
Six of the most active stocks yesterday were those in the O&G sector, with Icon Offshore Bhd leading the top spot with 691.33 million shares traded.
Its share price jumped 66.67% to 12.5 sen.
The group had just reported its 1Q20 results, which rose 366% year-on-year (y-o-y) to Rm20.36mil.
Out of the top 50 most actively traded stocks yesterday, 15 of them were of O&G companies and service providers for the sector.
Compared to healthcare counters such as medical equipment suppliers and manufacturers, there was a noticeable plunge in the number of shares that were traded.
Medical equipment provider LKL International Bhd, which rose 257% to 50 sen year-to-date, had 30.96 million shares traded yesterday. Its peak was on May 12 with 254.66 million shares.
HLT Global Bhd, which is involved in glove dipping lines, saw 29.17 million shares changing hands yesterday as compared to its peak of 321.11 million shares on May 13.
The rotation in momentum from healthcare stocks to O&G counters was observed beginning Friday, when 2.81 billion units were transacted in the Bursa Energy Index.
This was on the back of improved sentiments with rising demand and also after Saudi Arabia and Russia on April 13, committed to achieve oil market stability and also expedite a rebalancing of the market.
The two nations had engaged in an oil price war in March which brought most markets globally to new lows amidst the turmoil from the Covid-19 pandemic.
Shares of companies in the Bursa Energy Index do not usually trade above one billion units.
The previous high was on April 3 at 2.59 billion units following a strong recovery of 14.11% in Brent crude oil price to US$34.11 per barrel that day.
Kenanga Research O&G analyst Steven Chan said oil still stands at an oversupply state, but given the ease in global lockdowns, it is expected to gradually ease after peaking in April with the Opec+ production cuts kicking in this month. He added that among other factors which led to improved confidence in the sector were early indications of demand recovery as refineries in China ramp up operations.
“Crude inventories have also started to fall while the United States’ oil rig counts have also fallen to a 20-year low.
“Barring any unforeseen circumstances that could hamper the demand recovery trajectory, we have a Brent average assumption this year of US$40 per barrel, so we are somewhat expecting a mild recovery going into the second half as the effects of the virus gradually tapers down,” he said.
Chan added that while earnings for most O&G companies in the first quarter this year (1Q20) should largely remain unaffected, a weaker 2Q20 can be expected and several companies will also be seeing risks of impairment provisions for 2020 amidst project deferments.
MIDF Research O&G analyst Noot Athila Mohd Razali said recent data from the International Energy Agency suggested that crude inventories were falling and were expected to fall by about 5.5 million barrels per day in 2H20.
She said this would bode well for the recovery in oil price as the demand will be able to catch up with the supply.
“We think crude oil will remain in the range of US$30 for the time being, given that inventories remain significantly higher than demand and with new clusters of Covid-19 infections emerging in countries that have eased restrictions, which may stunt the climb in oil prices.
“While a rebound in the O&G sector seems inevitable in the near term as the fundamentals in the market improves, we remain cautious as many local players are not only affected by the low crude oil price but also the recent implementation of the movement control order,” she said.
“Barring any unforeseen circumstances that could hamper the demand recovery trajectory, we have a Brent average assumption this year of US$40 per barrel.” Steven Chan