Oil rally fuelling interest in O&G stocks

Four out of the 7 most active counters on Bursa Malaysia yesterday are O&G-related


The rise in the price of crude oil to a four-year high of US$80 (RM331.20) a barrel has lifted over 20 oil and gas (O&G)-related stocks on Bursa Malaysia.

Bloomberg data shows five stocks have risen over 12% since Monday to the close of market yesterday as crude oil prices extended gains on prospects of tighter global supply availability, while 15 others rose between 1% and 10%.

The stock that has increased the most over the span of three trading days was Deleum Bhd which closed at RM1.14 yesterday, 16.92% higher than its close last Friday of 98 sen a share.

The company had recently secured three new contracts from Petronas Carigali Sdn Bhd, Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd for provision of integrated corrosion solution and oilfield services.

Deleum has a market value of RM461.29 million and its stock had returned 27% year-to-date, trading at 14 times its estimated earnings per share for the coming year.

Upstream player Hibiscus Petroleum Bhd closed 17 sen, or 15.89% higher, at RM1.24 as the counter was the most actively traded on the market yesterday with 90.4 million shares exchanging hands.

Reach Energy Bhd was another upstream player that attracted investor interest as it rose 13.92% since the oil price hiked, and 75% in the past month. It returned 8.5% so far this year and recorded a gain of 6% in the past 52 weeks.

Four out of the seven most active counters on the local bourse yesterday were O&G-related.

Hong Leong Investment Bank Bhd’s (HLIB) traders brief yesterday noted the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) may see extended profit-taking activities over the near term and trading interest will be seen within O&G stocks as the Brent crude oil contract price is hovering steadily above the US$80-abarrel level.

Crude oil price breached the US$80 per barrel level — the highest since end-2014 — on tightening supply conditions, coupled with reluctance from OPEC producers to hike production aggressively.

“The oil price rally, in our view, will boost oil majors’ confidence to sanction more projects which eventually will heat up the entire value chain,” HLIB added.

Oanda Corp head of Asia-Pacific trading Stephen Innes said if OPEC does not ramp up production, oil prices have the legs to run further as this will be viewed as an extremely bullish signal for near-term prices.

“Oil markets remain well-supported in Asia, despite the unexpected 2.9 million barrels build in the American Petroleum Institute report.

“While US inventory data counts oil, prices stay in the bulls domain amid concern US sanct ions on Iranian crude oil exports will result in much tighter physical market conditions once they take effect in November,” he said.

Innes added that markets could still be underestimating the supply crunch from US sanctions.

Two other counters that have gained over 12% in the last three days were Carimin Petroleum Bhd and TH Heavy Engineering Bhd (THHE).

Carimin closed at 26 sen a piece yesterday, while THHE ended the trading session at five sen.