Higher oil prices fan interest in O&G stocks

Higher oil prices fan interest in O&G stocks
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KUALA LUMPUR (Feb 9): The continued rise of crude oil prices with Brent crude trading at close to US$60 a barrel has sparked renewed interest in oil and gas (O&G) stocks.

The surge in interest has put several O&G stocks on the list of the top 20 most actively traded counters on Bursa Malaysia.

The higher crude oil prices bring a glimmer of hope that oil majors will start to increase their capital expenditure, which means that more jobs will be available.

As of 11.31am, shares in O&G counters such as Sapura Energy Bhd, Velesto Energy Bhd, Bumi Armada Bhd and KNM Group Bhd were among the most actively traded.

Sapura Energy was the fourth most actively traded counter on the local bourse with 91.51 million shares done. It was up by 4% or half a sen higher at 13 sen, yielding a market capitalisation of RM2.08 billion.

Meanwhile, Velesto was up by 3.85% or half a sen higher at 13.5 sen, valuing it at RM1.11 billion. In terms of trading volume, it saw 84.14 million shares, making it the fourth most active counter on Bursa Malaysia.

KNM was the seventh most actively traded counter on the local bourse with 80.29 million shares done. It was up by 2.7% or half a sen higher at 19 sen apiece, yielding a market capitalisation of RM625.58 million.

Bumi Armada was up by 1.39% or half a sen higher at 36.5 sen, valuing it at RM2.15 billion. Trading volume-wise, it was the 16th top active on Bursa Malaysia with 33.33 million shares done.

Reuters reported today that oil prices edged up to their highest in 13 months as supply cuts by major producers and optimism over fuel demand recovery supported energy markets.

"Brent crude futures for April gained 29 cents, or 0.5%, to US$60.85 a barrel by 0246 GMT. US West Texas Intermediate crude for March was at US$58.25 a barrel, up 28 cents, or 0.5%.

"Additional supply reductions by top exporter Saudi Arabia in February and March, on top of cuts by producers in the Organization of the Petroleum Exporting Countries and their allies, are tightening supplies and balancing global markets.

"Investors are also pinning hopes on oil demand recovery when Covid-19 vaccines take effect. A weak dollar has also helped shore up prices of commodities," Reuters reported.

However, the rising prices have caused concern.

"While the rally has recently gained momentum, one technical indicator is signalling oil is overbought and due for a correction, and top traders Vitol SA and Gunvor Group Ltd have expressed caution about the surge in prices," Bloomberg reported today.

Some analysts see that O&G stocks might be fit for a recovery theme play given that many of them are currently trading at low valuations. On the other hand, the others are cautious, noting that it is too early to draw any conclusion given that crude oil prices have been volatile over the past five years. Oil prices have swung between US$11 and US$50 within the past 12 months.

It is worth noting that billionaire John Fredriksen-controlled rig operator Seadrill Ltd has filed for bankruptcy protection for its Asian units after the economic downturn triggered by the coronavirus pandemic worsened a crisis in offshore oil drilling yesterday.

Bloomberg reported that Seadrill made its second filing within four years at the US Bankruptcy Court in the Southern District of Texas.

"The filing covers Seadrill GCC Operations, Asia Offshore Drilling Ltd, Asia Offshore Rig 1 Ltd, Asia Offshore Rig 2 Ltd, and Asia Offshore Rig 3 Ltd, the company said in a statement on early Monday," Bloomberg reported.

Lam Jian Wyn