Oil surges on Saudi air strikes in Yemen

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KUALA LUMPUR: The rise in crude oil prices, after Saudi Arabia started military operations against Iranian backed-Houthi rebels in Yemen, and its impact on local oil and gas (O&G)-related stocks is likely to be temporary, analysts say.

At the time of writing, Brent crude oil had advanced 4.34% or US$2.45 (RM9) to US$58.94 per barrel, while West Texas Intermediate (WTI) was up US$2.32 or 4.71% to US$51.53.

MIDF Research analyst Aaron Tan told The Edge Financial Daily, “Every time there is a new geopolitical conflict in the Middle East, the first reaction would always be a spike in crude oil price. The concern is always whether there is oil supply disruption.”

“When it comes to crude oil supply disruption, the question is whether there is a disruption in production oilfields itself or an interruption in the transportation of oil,” he explained.

Tan pointed out that the full impact of the new Middle East tension on crude oil price would only be known once the damage of the assault on oil-related facilities is known.

“Once the details of the attack are known, oil traders would start to assess the situation and see if oil facilities were actually damaged, the extent of the damage and cost, and how much they stand to lose from the supply disruption, if any,” said Tan.

Singapore’s OCBC Investment Research Pte Ltd analyst Low Pei Han raised the point that Yemen’s location along the oil shipping route in the Middle East could disrupt delivery of the commodity.

“While shipping routes to Asia may not be immediately affected, shipping lanes to Europe could be. Arab producers have to pass Yemen’s coastlines via the Gulf of Aden to get to Europe,” she said.

While Yemen is not a major oil producer — producing less than 0.2% of the world’s oil output, according to Bloomberg — it shares a border with Saudi Arabia, the world’s biggest crude oil exporter.

Furthermore, it is strategically located along the route used by oil tankers from the Persian Gulf to the west.

Locally, trading interest appears to be returning to O&G-related stocks. Yesterday, smaller capitalised O&G-related stocks such as Sumatec Resources Bhd and Perisai Petroleum Teknologi Bhd saw their trading volumes and prices increase.

Sumatec (fundamental: 2.4; valuation: 0.3) closed one sen or 4.55% higher at 23 sen, with 105.8 million shares traded. It reached an intraday high of 24 sen.

Perisai (fundamental: 0.45; valuation: 1.2), which is an upstream services provider of O&G vessels and facilities, hit 59 sen during the day, before closing at 58.5 sen, up 4.5 sen or 8.33%. A total of 62.73 million shares were done.

Meanwhile, larger O&G counters such as KNM Group Bhd, UMW Oil & Gas Corp Bhd (UMWOG) and Barakah Offshore Petroleum Bhd were among the gainers on the local bourse yesterday.

KNM (fundamental: 0.85; valuation: 2.4) surged 8.53% or 5.5 sen to close at 70 sen, UMWOG (fundamental:1.05 ; valuation: 0.6)  rose 6.08% or 13 sen to RM2.27, while Barakah (fundamental: 2.1; valuation:1.8) rose 5.06% to 93.5 sen.

Meanwhile, integrated O&G services provider SapuraKencana Petroleum Bhd (fundamental: 1.3; valuation: 1.8) rose eight sen or 3.45% to close at RM2.40, with 18.46 million shares done for a market capitalisation of RM13.9 billion.

Bumi Armada Bhd (fundamental: 1.05; valuation: 1.2), a global floating production, storage and offloading (FPSO) player traded to RM1.07 during the day, before closing three sen or 2.94% higher at RM1.05, for a market capitalisation of RM6.16 billion.

FPSO player Yinson Holdings Bhd (fundamental: 1.5; valuation: 1.5) closed just two sen or 0.74% higher at RM2.81, but volume reached 4.7 million shares.

Despite that, head of research at M&A Securities Rosnani Rasul said that conflict’s influence on local O&G stock prices would be limited as the underlying landscape of the global O&G remains unchanged.

“With Saudi Arabia being the largest oil producer in the world, any news about them will cause an oil price shock. The air strike in Yemen is a localised conflict and the fundamental issues within the global O&G sector is the same. There is a global supply glut,” she said.

“In the end, it is the company’s fundamentals and their earnings which will determine any sustainable share price increase. The impact of the higher oil price now is only going to be temporary,” she said.

Saudi Arabia initiated airstrikes against the rebel forces yesterday after Yemeni President Abed Rabbo Mansour Hadi fled the southern port city of Aden by boat as the Houthis advanced.  


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This article first appeared in The Edge Financial Daily, on March 27, 2015.