Supply deals rally oil prices

Oil prices are boosted by news that Trump will hold a roundtable discussion with the country’s top oil executives


CRUDE oil futures surged more than 10% yesterday as news on China’s plan to start buying oil for its Strategic Petroleum Reserves (SPR) and a truce between Saudi Arabia and Russia on production levels pushed Bursa Energy Index 88 points higher.

Brent crude futures contract surged nearly US$2 (RM8.72) or 8.37% to US$26.81 a barrel, while the West Texas Intermediate (WTI) crude futures were up 7.83% or US$1.59 at US$21.90.

The higher prices saw investors moving into beaten-down sector stocks with Velesto Energy Bhd rising 4.5 sen or 37% to 16.5 sen, Petronas Dagangan Bhd (PetDag) rose RM1.32 or 6% to RM21.70, while Hibiscus Bhd rose 9.5 sen or 28% to 43 sen.

Bloomberg reported China — the world’s biggest oil importer — intends to buy crude for its SPR driven by cheaper prices.

Oil prices were also boosted on news that US President Donald Trump will hold a roundtable discussion with the country’s top oil executives.

Trump also revealed he had spoken to Russia’s President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed Salman on the subject.

AxiCorp Financial Services Pte Ltd global chief market strategist Stephen Innes said the move by China could put some much- needed distance between the psychological WTI US$20 and the current spot.

“Ultimately, it could provide a much-needed reprieve and some wiggle room to the devastated energy complex. At this stage of the game, it’s more of an industry-wide concern as opposed to just the price of spot oil which is up 20% from the lows already, but it should not come as a big surprise,” he said in his daily notes yesterday.

The local benchmark index FTSE Bursa Malaysia KLCI also ended 0.43% or 5.74 points higher at 1,328.39, lifted by oil and gas (O&G) stocks such as PetDag and Petronas Gas Bhd.

Most of the O&G stocks in the energy index also closed higher led by Serba Dinamik Holdings Bhd (up 19.3%), Sapura Energy Bhd (up 20%), Dialog Group Bhd (up 1.32%) and Dayang Enterprise Holdings Bhd (up 17.47%).

The gains yesterday are a consolation to the sector stocks that experienced the largest fall in terms of share price in the first quarter (1Q) as investors fled fearing a fall in earnings and impairments as oil companies cut spending.

Bursa Malaysia’s energy index was down by 550 points year-to-date.

Sector companies like Scomi Energy Services Bhd’s have lost almost all of its value despite undertaking a five to one share reduction in the period as its units defaulted on its bond obligations. The Practice Note 17/2005 counter closed at six sen yesterday.

The company had a market value of RM28 million yesterday, a far cry from the RM175.62 million recorded in January this year.

Niche upstream player, Reach Energy Bhd, also recorded a substantial loss in its share price in the first three months of the year as crude oil price fell from average US$65 a barrel level in January to US$24 now.

Reach Energy was trading at 17 sen a piece in January and ended the 1Q 80% lower at four sen a share.

The decrease dragged its market capitalisation by RM178 million to RM38 million as at end-March.

The share price of the offshore support vessel provider Icon Offshore Bhd has fallen 12 sen to close at four sen on March 31, giving it a market capitalisation of RM65 million.

Malaysian floating production specialist Bumi Armada Bhd was also among the companies that have seen its share price slashing down since January.

The stock has lost 74.77% or 40 sen in value to settle at 13.5 sen yesterday from 54 sen at the start of the year.

Bumi Armada’s valuations have been hit by a fresh wave of fears about its clients moving ahead with its project amid the low price environment and weaker than expected quarterly results announced in February.

Bumi Armada also lost a good amount of its market value in the last three months, from RM3.14 billion to RM793.3 million on March 31.

Rig services provider, Velesto Energy, was also not spared the double whammy of Covid-19 and weaker oil price, recording a 71% of 27 sen decrease in share price over the course of three months.

Velesto Energy was priced as 39 sen a piece at the start of the year, but has fallen to 12 sen at the end of March, erasing a staggering RM2.22 billion of its market value.

Counters that have managed to hold on are Dialog Group Bhd which is expected to stand to benefit from demand for its crude tank storage facilities and MISC Bhd which looks set to benefit from its energy transportation business as charter rates for vessels rise.