KUALA LUMPUR: UOB Kay Hian Malaysia Research expects upstream oil producers HIBISCUS PETROLEUM BHD, REACH ENERGY BHD and SAPURA ENERGY BHD to be direct beneficiaries from the disruption in the oil supply after the drone attacks on Saudi Arabia’s oil facilities.
The research unit said for Sapura Energy, management guided the SapuraOMV joint venture upstream earnings will be loss making (regardless of high oil price levels) for several quarters until early FY21 conservatively, when the gas volumes become significant.
“This is because of the higher depreciation effect post-consolidation of Sapura and OMV, ” the research house said in its latest strategy report.
To recap, the research unit said the recent drone attack on the significant Saudi facilities in Abqaiq and Khurais fields had caused fires that shut-in 5.7 million barrel per day of crude production, representing 6% of total global production and half of Saudi’s.
This caused oil prices to spike on concerns of major supply disruption, geopolitical risk, and resulted in a cascading effect across the value chain from upstream, tankers and petrochemical industries and to the end-user industries.
O&G sector sentiment could see positive trading range.
The higher geopolitical risk premium is positive for oil prices which had undershot the US$65 to US$75 a barrel expectations for 2019.
Despite talks of releasing ample oil inventory to cushion supply shortage, oil prices could move up on a sustained uptrend and may test the next upside at US$80 levels.
If so, this provides positive a trading valuation angle for upstream O&G stocks.
“However, this does not impact most of the upstream stocks fundamentally, as we expect local contract flows to remain consistent with the long-term view on oil prices. Only Serba Dinamik (buy/target: RM5.20) could benefit fundamentally from potential opportunities for repair/maintenance works, as it is the only local stock with significant Middle East exposure, though management confirmed it currently does not have direct contract involvement in the affected facilities, ” it said.
As for petrochemical stocks, the research house said they could experience feedstock disruptions.
UOB Kay Hian Research said Petronas Chemicals and Lotte Chemical Titan were beneficiaries as chemical prices may experience upside volatility, given that Saudi’s disruption effect on the petrochemical space is more pronounced at up to 9% of total global capacity (versus 6% for crude oil production).
In the downstream sector, Petronas Dagangan Bhd, Petron Malaysia Bhd and HENGYUAN REFINING Co Bhd could benefit from inventory lag gains on sustained oil price uptrend in their profits, versus lag loss in the second quarter 2019 through the third quarter 2019.It said the attacks might have negative impact on tanker demand and rates, however MISC BHD should be less exposed.
“Shipping analysts view that very large crude carrier (VLCC) demand may wane. However, US crude exports may grow as the United States has committed to releasing its own reserves. While tanker stock sentiment and tanker rates may be hit, we view that MISC is less affected given its low mix of VLCC of 14 out of 65 petroleum fleet, and significant Aframax exposure in the US Gulf.“Any upside risk on its bunker costs/COGS is mitigated by complete cost-pass through in its time charter (65% mix), and sufficient bunker clause adjustments, ” it said.
As for plantation, it expected crude palm oil price to trend up in sympathy with crude oil price.
The current palm oil-gas oil spread widened to US$132 a tonne following Monday’s crude oil price surge.“Transportation sector is a clear loser. AIRASIA has hedged only 20% of its 2020 jet kerosene requirements, ” it said.