O&G STOCKS HEADING FOR BETTER YEAR?


04 Dec 2018

Source: New Straits Times

Bursa Malaysia's energy index recorded single-day gain of 2.97pc yesterday


Brent oil futures traded at US$66 per barrel on average last month. BLOOMBERG PIC

OIL and gas (O&G) stocks may be heading for a better year in 2019 as crude oil prices are expected to claw back current losses to trade at US$70 per barrel from next month.

The energy index, which represents the stocks, rebounded yesterday from its one-year low, although it may continue to stay volatile until year-end, said analysts.

This was an opportunity to hunt for bargain stocks, they said. 

The current weakness in oil price stemmed from concerns overaglobal supply glut, exacerbated by United States waivers for eight countries to continue buying crude from Iran, said one of the analysts.

The Brent oil futures price marked its eighth week of losses after declining marginally by 0.2 per cent last week to US$58.71 per barrel. It had traded at US$66 per barrel on average in the past month.

Yesterday, as at 2pm, Brent rebounded 4.86 percent to US$62.35.

As a result, share prices of O&G companies, such as Bumi Armada Bhd, Carimin Petroleum Bhd, Dayang Enterprise Holdings Bhd, Deleum Bhd, Dialog Group Bhd, Hengyuan Refining Co Bhd, Hibiscus Petroleum Bhd and KNM Group Bhd, also rose, leading the energy index to record a single day gain of 2.97 per cent.

MIDF Research O&G analyst Noor Athila Razali expects oil prices to remain volatile towards the year-end due to persistent geopolitical uncertainty and trade tensions between China and the US.

“This is because of concerns over crude oil oversupply and weakening demand due to the strengthening US dollar,” she told NST Business.

However, she said oil prices would gradually recover to trade at more than US$70 per barrel from next month.

“We expect more visibility on US foreign policies and sanctions on Iran by then,” she said.

Athila also expects demand to be firmer next year on the back of stronger regional currencies.

“The recovery in oil prices will stem from the almost equilibrium level between supply and demand... hence, we do not think the current low price environment would persist into 2019,” she added.

JP Morgan has forecast Brent to trade at US$73 per barrel for next year.

Stock market analyst Nazarry Rosli said O&G companies’ profit margins were very much in tandem with oil prices, and any catalysts for a higher oil price would drive up share prices.

“Investors are eyeingameeting by the Organisation of the Petroleum Exporting Countries on December 6 when they are expected to cut production to boost oil price. This will bode well for the local O&G firms. Hence, it is a good time to accumulate the stocks,” he said.