Oil counters keep suffering

Fed’s lack of early warning signals ‘might be enough to sway overwhelming negativity in markets’


Malaysian oil and gas (O&G) counters continue to suffer amid renewed weakness in global oil prices and financial markets, despite the improved prospects as stipulated by Petroliam Nasional Bhd (Petronas) in its outlook for 2019.

Crude prices dropped nearly 3% yesterday to almost a one-year low on concerns of oversupply, while markets worldwide roiled after the US Federal Reserve (Fed) hiked interest rate by a quarter-point in its fourth raise this year.

Brent oil futures plunged 2.8% to US$55.64 (RM232.49) per barrel, while US light crude oil shed 3.3% to a low of US$46.56 yesterday, placing both at over 30% below the multi-year highs achieved in October this year after both contracts recovered in a rally on Wednesday.

Analysts are positive the local sector’s outlook is set to improve with more work orders from Petronas.

“We are encouraged that a majority of domestic O&G activities, across the services value chain, will be on the rise. This is premised on Petronas’ latest activity outlook (2019-21) report vis-à-vis its 2018-20 issue a year ago.

“We see Velesto Energy Bhd, Malaysia Marine & Heavy Engineering Bhd and offshore support vessel players (Icon Offshore Bhd and Alam Maritim Resources Bhd) as key beneficiaries from the improving domestic landscape despite day rates will be flattish,” a Maybank Investment Bank Research report noted yesterday.

The renewed volatility in crude prices saw active movements in domestic O&G counters. Petronas Gas Bhd shed 20 sen or 1.04% to settle at RM19 yesterday, while Petronas Dagangan Bhd was down 20 sen or 0.78% at RM25.40 as at market close.

Sapura Energy Bhd closed the day’s trade one sen or 1.69% lower at 29 sen, valuing the firm at RM1.74 billion. The stock was also heavily traded, with 61.17 million shares done.

Notably, this placed the group’s share price below its rights issue price of 30 sen for the second consecutive day.

Sumatec Resources Bhd lost one sen or 33.33% to settle at one sen yesterday, valuing the firm at RM42.53 million. The stock was actively traded, with 127.97 million shares done.

Bumi Armada Bhd closed unchanged at 15 sen. Velesto Energy fell one sen or 2.78% to 17 sen, giving the company a market value of RM1.44 billion. The stock saw 4.98 million shares changing hands.

Dialog Group Bhd was the outlier, jumping 27 sen or 9.82% to close at RM3.02 yesterday, with 14.05 million shares traded and a market capitalisation of RM17.03 billion.

Alam Maritim lost one sen or 7.14% to close at seven sen yesterday, valuing it at RM60.09 million.

Hibiscus Petroleum Bhd gained two sen or 2.53% to hit 81 sen, with a market capitalisation of RM1.29 billion. Its shares were heavily traded, with 21.91 million units changing hands.

Oanda Corp head of trading Asia Pacific Stephen Innes said risk assets and oil prices reacted poorly to the Fed’s forward guidance, which suggests the Fed remains on autopilot.

“Traders are back to dealing with the supply-demand equation, which suggests the path of least resistance remains lower, given that we could be (in) a massive washout in equity markets.

“And while the Energy Information Administration data looked more supportive than Tuesday’s American Petroleum Institute report, domestic crude supplies fell by 500,000 barrels, but a massive four million barrels in distillate supplies,” he said in a note to clients yesterday.

Innes said oil trader and risk in general may take some temporary comfort in the lack of early warning signals about the US economy from Fed chair Jerome Powell, “which might be enough to sway the overwhelming negativity in the markets”.

“It’s been a tumultuous week in oil markets and traders may opt to shut it down after the last big-risk event of the year, with year-end positions squaring likely to kick in today,” he said.

Petronas last week released its outlook for 2019, in which the national oil company said it expects a better year for the upstream O&G segment compared to last year’s projection.

In particular, the drilling segment and marine vessels are expected to see improved demand, although Petronas said oil price volatility is likely to persist in the coming year.

The FTSE Bursa Malaysia KLCI closed 5.1 points or 0.31% lower at 1,650.56 yesterday, somewhat recouping its losses after hitting an intraday low of 1,630.95 in early trade. Investor sentiment was dampened after US markets dived overnight in response to the Fed’s rate hike.

ForexTime Ltd chief market strategist Hussein Sayed said the Fed’s decision to raise interest rate by 25 basis points was widely anticipated and priced in most asset classes, thus the rate hike itself was not the upsetting factor.

“Investors were expecting a more dovish tone from Powell, given the sharp fall in the equity markets and challenging global macroeconomic conditions. All they got was a less hawkish tone,” he said in a note yesterday.