PETALING JAYA: Oil and gas (O&G) stock corrected after a five-day rally as global oil price retreated.
On Thursday, Saudi Arabia and Russia have finally ended their oil price war, agreeing to slash their production together with other members of OPEC+ alliance.
However, it was reported that Mexico refused to participate in the oil-production cuts, which may jeopardize the pact.
Notably, these stocks had risen more than between 40% and 50% over the last week as investors betting ahead of that OPEC will cut their production and end the oil price war.
The broader market is mainly in red as well as the extension of the MCO may further impact economic growth. International benchmark Brent crude spot price shed off US$1.36 or 4% US$31.48 per barrel on Thursday.
Note that in early March, Saudi and Russia ramped up their production to retain their market share amid falling oil demand from the outbreak of Covid-19 pandemic.
That has caused oil prices to fall to 18-year low to US$22 a barrel for Brent oil by the end of March.
Despite the cut by OPEC, the shrinking demand for oil would dwarf the effort.
AmInvestment Research said that the cut by OPED is necessary given storage constraints.
“Even though parties may be unwilling to agree, we view these cuts as necessary given that global storage facilities are rapidly reaching full utilisation due to the massive Covid-19-depressed demand loss,” it said in a report on Friday.
Quoting oil trader Trafigura, the research house said it has been estimated that global oil demand could drop by 30mil barrels per day or by 37%.
“Nevertheless, this appears that the Opec+ cuts of only 10mil barrels/day, compelled by lower offtake, are inadequate to prevent oil prices from sliding back below US$30 per barrel,” it added.