O&G sector gets a shot in the arm




PETALING JAYA: The oil and gas (O&G) industry, that has been in the doldrums due to the supply glut and plunging energy prices caused by the Covid-19 pandemic, is likely to end the year on a high note.

A turnaround is taking pace which saw the Brent crude oil hitting its highest level since March at US$48.80 per barrel on hopes of an effective vaccine that could pave the way for the travel and energy industries to recover.

Oil-related stocks hogged the Bursa Malaysia top gainers list yesterday following a refreshed outlook on the industry.

Hibiscus Petroleum Bhd closed 5.1% higher to 62 sen, Sapura Energy jumped 8.7% to 12 sen, Petra Energy Bhd surged 10.75% to RM1.03 and Serba Dinamik Holdings Bhd rose 1.76% to RM1.73.

The breakthrough in the search for Covid-19 vaccines has changed the sentiment surrounding the O&G sector.

Hibiscus chairman Zainul Rahim Mohd Zain had expected that prices would stabilise in the second half of 2021, depending on the number of Covid-19 cases and the Opec+ group’s decisions.Hibiscus chairman Zainul Rahim Mohd Zain had expected that prices would stabilise in the second half of 2021, depending on the number of Covid-19 cases and the Opec+ group’s decisions.

Analysts and industry observers are projecting higher crude oil prices in 2021, although lower than US$60 per barrel on the back of the global economic recovery and increasing demand.

RHB Research has forecast that oil prices would recover to about US$51 per barrel next year.

Meanwhile, Maybank IB Research said that the price of Brent crude oil could reach US$50 per barrel if it breached a resistance of US$46.50.

“Our next targets are US$52 and US$60 per barrel. On the flip side, support is at US$41.20 and US$39.30 per barrel, ” it said in a report yesterday.

“The rally in the price of oil is set to spark further interest in domestic energy names, ” it added.

A local O&G analyst pointed out that oil producers such as Hibiscus would benefit from the improvement in the oil prices, while service providers would need to wait for oil majors to announce more contracts.

“Higher oil prices would eventually help to improve Petronas’ cash flow and hence entice it to spend more, ” the analyst told StarBiz.

He reckoned that oil prices would recover next year, but it would be choppy due to the supply glut and the increasing number of Covid-19 infections.

Many oil majors have been hit hard by the collapse in oil prices this year, forcing them to slash their capital expenditure.

Hibiscus chairman Zainul Rahim Mohd Zain had expected that prices would stabilise in the second half of 2021, depending on the number of Covid-19 cases and the Opec+ group’s decisions.

“Assuming the pandemic is going to flatten off and a vaccine is in place to improve economic growth prospects, we expect the price of oil to move up in the second half of next year. We expect a more stable oil price in the second half of 2021 and the price of oil should strengthen from 2022, ” said Zainul Rahim during a virtual press conference on Monday.

As global oil demand rises, inventory draws in 2021 will cause some upward oil price pressures, and the Brent is expected to average US$47 a barrel next year, according to US-based Energy Information Administration.

In April, Brent fell to US$14 per barrel – the lowest since 1999. Futures also inverted to an unprecedented negative US$38 per barrel due to a lack of storage capacity.

Even before the pandemic, the sector had faced an oversupply situation battering many O&G stocks.

> See also page 8

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