This article first appeared in The Edge Financial Daily on December 28, 2018

IT took 33 months for Brent crude oil to reach above US$80-level this year, from the low of US$28 in January 2015. The steady climb for more than two years had painted a positive picture that the worst could be behind the oil & gas (O&G) industry.

But the Brent crude needed less than three months to plunge 40% from the peak of US$86.29 to one year low of US$50.47 on Christmas eve.

The nail-biting fall in crude oil prices in the past two months has unnerved policymakers, industry players and investors.

On Bursa Malaysia, investors were dumping O&G stocks. There were an increasing number of companies whose share prices dived to record lows in the last few weeks of 2018.

Of the 30 O&G stocks listed on Bursa, only five traded above RM1. An increasing number of them are below 50 sen.

Once investor darlings like Bumi Armada Bhd, Alam Maritim Bhd, and Velesto Energy Bhd (formerly UMW Oil & Gas Bhd) that boasted of multibillions in market capitalisation four years ago, had seen valuations shrunk by over 95%.

As high finance costs are eating into debt-laden O&G companies’ earnings, the renewed pressure on oil prices do not augur well for them, particularly those in the middle of debt restructuring or planning, to do so.

The recent fall in crude prices has shaken confidence in the industry’s prospects. This will not be conducive for any fund-raising exercise, according to analysts.

However, as the saying goes, every cloud has a silver lining.

There has been more news on companies securing O&G contracts.

In the Petronas 2019-2021 Activity Outlook Report, the national oil firm has revised upwards the prospects of key projects in the pipeline, including offshore drilling, marine vessels, linepipes and decommissioning.

Petronas has benchmarked its planning for next year on Brent crude annual average assumption of US$60 to US$70.

With share prices at historical lows, certain research houses are overweight on the sector for next year.

CGSCIMB picked the O&G as one of its preferred sectors in 2019 alongside rubber gloves, healthcare and insurance.

O&G “offers good upside potential, either because they will benefit from higher crude oil prices via a higher order book or see earnings growth from expansion”, the research house said in a strategy note on Dec 18.

In view of the speedy fall of oil prices, Organisation of Petroleum Exporting Countries members pledged to reduce their production by 800,000 barrels per day for six months beginning in January next year.

Russia and other partners promised to slash an additional 400,000 barrels per day. Would production cut be effective enough to stem the drop on oil?