Energy meters glow as crude oil prices soar

KUALA LUMPUR (Jan 12): Oil and gas (O&G) stocks rose on Bursa Malaysia on Wednesday as crude oil prices rose, making the energy index the best index on the stock market.

In contrast, the benchmark FBM KLCI of the stock market closed down 1.09 point or 0.07% at 1,563.2 due to losses of heavyweights of the bank and plantations.

The energy index, which tracks O&G meters, closed up 1.69% or 12.31 points to a nearly two-month high of 740.66, after previously rising 2.1 % to 743.94.

Of the 25 stocks in the index, 16 rose against four that ended lower and five that ended unchanged, according to Bloomberg.

The rise in the index came as the price of Brent crude oil jumped nearly 3.5% or US $ 2.85 per barrel to US $ 83.72 per barrel, its highest level since early November. .

The price of oil has been supported by tight supply and expectations that the increase in Covid-19 cases and the spread of the Omicron variant will not derail the recovery in global demand, according to Reuters.

On Wednesday, the price of Brent continued its uptrend. It was up 60 cents or 0.72% to US $ 84.32 a barrel by 9:30 p.m.

The higher price of Brent has sparked interest in O&G meters at Bursa Malaysia.

Dialog Group Bhd was the largest index driver in terms of percentage (44.28% or 5.45 points), followed by Bumi Armada Bhd (13.9% or 1.71 points) and Hibiscus Petroleum Bhd (11, 02% or 1.36 point).

Other main drivers of the index were Dayang Enterprise Bhd (9.08% or 1.12 points), Icon Offshore Bhd (4.24% or 0.52 points), Petron Malaysia Refining and Marketing Bhd (3.39 % or 0.42 point) and Carimin Petroleum Bhd (2.2% or 0.27 point). ).

In terms of share price performance, Petron gained the most value (eight sen or 1.85% at RM4.40) followed by Carimin (six sen or 8.45% at 77 sen), Dayang (five sen or 5.65% to 93.5 sen).

Analysts covering the O&G sector have a positive view of the sector and expect local energy meters to increase due to better business expected in 2022, fueled by higher capital spending at Petronas.

Maybank analyst Liaw Thong Jung, who has maintained a positive view of the O&G sector, expects an upward trend in oil consumption, production and prices in 2022.

Liaw said the research firm’s estimate predicted the price of Brent in 2022 to be between US $ 75 and US $ 80 per barrel. He also sees an upside risk to the oil price assumption if the global energy crisis worsens.

“That said, global capital spending is expected to rise, guided by capital discipline and investment returns. The increase in capital spending is not a surprise, as it starts from a low base in 2020 and 2021 and is far from the levels of 2014, ”he said in a recent strategy brief. investment.

Liaw said Yinson is a key choice for the industry as the company stands out with its growth prospects and leadership in floating production, storage and offloading (FPSO) business globally, operational strength and financial, its most comprehensive and clearest sustainable development program, and not very demanding. valuations.

He also likes Dialog and Wah Seong Corp Bhd. He said Dialog will develop greater traction in its Pengerang operation on new capacity absorption with long-term development prospects, while Wa Seong’s push will come mainly from its pipe coating projects in Qatar and China. Malaysia. .

RHB Research analyst Sean Lim was also bullish on the O&G sector, maintaining his call “overweight” on the sector.

“The upward revision of activity forecasts in the latest Petronas Activity Outlook (PAO) 2022-2024 may suggest that upstream activities should resume with greater momentum in 2022.

“(Therefore) we estimate Petronas’ capital expenditure at RM40-45 billion in 2022, with continued redeployment of resources to renewables,” Lim said in a research note dated Jan. 4.

In addition, Petronas allocates an average annual investment of Ringgit 20 billion for upstream activities between 2022 and 2027, of which 40% for the international division. This indicates a sharp increase of 9.4 billion ringgit, leading Lim to believe that the domestic upstream space will be the beneficiary due to the increase in spending.

Despite this, Lim expects further downward revisions to crude oil demand by major agencies in the coming months, due to the re-application of lockdown measures in response to the emergence of new Covid variants. -19. He predicts that the price of Brent will be US $ 69 per barrel in 2022 and US $ 65 in 2023.

“Having said that, we believe the market will have taken into account the impact of Omicron to some extent. The pressures on supply will remain in 2022, but OPEC’s strategy remains very price-friendly – especially when oil prices are falling – as the cartel is ready to adjust production levels to support prices ”, he added.

Lim’s most popular titles for the industry are Petronas Chemical Group Bhd (PetChem) and Bumi Armada. He chose PetChem because of its attractive valuation, while Bumi Armada was chosen largely on the basis of its resilient earnings from operating FPSOs and improving its balance sheet.

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Felix J. Dixon