O&G stocks gaining momentum


Trading this week started with O&G stocks being among the most active counters and gainers on Bursa Malaysia following the news that oil major Saudi Aramco had become the world’s most valuable company overtaking Apple, thanks to the spike in the price of crude oil. (File pic shws Aramco oil production in Saudi Arabia. - Reuters)

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PETALING JAYA: Oil and gas (O&G) players are expected to benefit from the elevated crude oil prices this year.

Trading this week started with O&G stocks being among the most active counters and gainers on Bursa Malaysia following the news that oil major Saudi Aramco had become the world’s most valuable company overtaking Apple, thanks to the spike in the price of crude oil.

Brent crude oil price traded higher at US$113 (RM496.63) per barrel yesterday.

The Energy Information Administration (EIA) expects Brent crude oil prices averaging US$107 (RM470) per barrel in the second quarter this year.

Brent crude oil is expected to soften in the second half of this year to US$103 (RM453) per barrel, before falling to an average of US$97 (RM426) per barrel next year, according to the agency.

Over the past two days, shares of oil producing companies, namely Hibiscus Petroleum Bhd had gained 19 sen or 14.5% to RM1.50 apiece, and Dagang Nexchange Bhd, which also has a silicon wafer business, increased five sen or 6% to RM1.06 per share yesterday.

Other O&G service providers including Icon Offshore Bhd jumped 5% to 10 sen per share, Bumi Armada Bhd was up 2.44% to 42 sen, Yinson Holdings Bhd increased 2.19% to RM2.33 and Uzma Bhd surged 3.19% to 48 sen per share.

Refiners has also gained traction as counters such as Petron Malaysia Bhd gained 21% to RM6.91 and Hengyuan Refining Company Bhd increased 15% to RM7.33 per share.

It is worth noting that several O&G companies are in financial trouble and are undergoing restructuring.

One of the largest ongoing debt restructuring in corporate Malaysia is Sapura Energy Bhd to the tune of RM10bil.

Hong Leong Investment Bank Research (HLIB) said refining margins are at an all-time high due to structural issues.

“Our findings have led us to believe that the surge in refining product margins is a lingering problem arising from structural issues including the surge in demand post-pandemic, supply shortage due to years of under-investment and environmental, social and governance-related pressures, as well as sanctions on Russian oil.

“All of them would not be addressed in the immediate term,” it said in a report on Tuesday.

The research house pointed out that even before the Covid-19 pandemic, fossil fuels have been demonised as an energy source deemed to be environmentally harmful and going against the decarbonisation movement globally.

According to Bloomberg, old Western refineries have struggled to compete while environmental regulations have increased costs.

“The fuel-demand collapse triggered by Covid-19 only turbo-charged the trend, resulting in dozens of refinery operations shutting down for good in Europe and the United States in 2020 and 2021.

“While new capacities have emerged in China, the country controls how much fuel refiners can export so that capacity is effectively out of reach of the global market,” HLIB said.

“The sanctions on Russian oil had exacerbated the situation,” the research house pointed out.

Russia was a major exporter of not just crude, but also diesel and semi-processed oil that Western refiners turned into fuel.

“Europe, in particular, relied on Russian refineries for a significant chunk of its diesel imports. Now that sanctions are in place, Europe not only needs to find extra crude to produce diesel and other fuels, but crucially, it needs the refining capacity to do so,” HLIB said.

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