Analysts: Prices may rebound by year-end


  • Business
  • Thursday, 05 Oct 2006

PETALING JAYA: With economists and analysts having predicted that oil price would probably rebound to around US$65 by year-end, it seems like the trend is defying expectations, at least for yesterday as the commodity fell to an intra-day low of US$57.78 per barrel. 

Companies operating in the oil and gas (O&G) sector, though, continue to remain upbeat and analysts concur that there is no real cause for concern yet, especially for firms operating upstream.  

Local brokerage OSK Securities, when contacted by StarBiz yesterday, maintained its view that oil price could still rebound towards December as winter in the northern hemisphere approached, resulting in an increase in demand, but saw it “trending down” again in 2007. 

“As for the downtrend in prices affecting companies in the O&G sector, we would need to look at these (companies) individually.  

“Most of the firms have already secured contracts and, therefore, their earnings for next year should be safe,” OSK Securities research analyst Chris Eng said. 

He said companies such as KNM Group Bhd, Tanjung Offshore Bhd and Petronas Gas Bhd “should be fine” going forward, due to their good contracts tenure.  

But companies in the O&G services segment could face a slight slowdown as a consequence of possible decrease in demand, he added. 

“However, we believe it is very unlikely that oil price could dip below US$50 a barrel.  

“Having said that, low oil price would benefit petrol retailers as they stand to gain more from the Government’s reimbursements,” Eng said. 

Tanjung Offshore executive director Hamidon Md Khayon told StarBiz that a reasonably low oil price would not affect the company’s earnings, especially in the short term. 

“We are operating on oil price projections of between US$50 and US$70. Even at US$45 a barrel, it would still be fine for us, unless oil price was to suddenly tumble to US$15, then maybe it would affect our earnings,” he said. 

Hamidon said a higher oil price would no doubt benefit O&G companies as it would mean higher margins, but the current “comfortable” level was good for everyone in the long run. 

“There is no point in having high oil price which benefits us in the short term but would result in straining our customers’ pocket.''  

AmResearch said the lower oil price would not affect upstream O&G players much, but downstream players would see some effects in the longer term if the falling trend kept up.  

“Downstream players have businesses that are dependent on crude oil price, so we could see some effects. 

“Upstream players, however, would still find mining to be profitable and there would not be much impact, at least not in the short term. Oil price is still well above its 10-year average (of about US$26 a barrel),” it added. 

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