KUALA LUMPUR (March 8): A 14-year high in the price of Brent crude hasn't rubbed off on Bursa Malaysia-listed oil and gas (O&G) counters even though oil prices hit US$130 (RM543.85) per barrel on Monday (March 7).

Damage to the balance sheet from previous downcycles has yet to heal, and the benefit of higher oil prices may only come later, said a local research analyst who preferred not to be named.

Hibiscus Petroleum Bhd has emerged as the top beneficiary of the commodity rally as it is a pure upstream O&G operator with a relatively low lifting cost, he said.

“The rest, unfortunately, are not riding the waves, maybe due to the scars inflicted from previous downcycles and some that are still overly geared and have weak balance sheets,” he told The Edge.

He said global oil demand is strengthening but the increasing hunger for energy has not been matched because of supply disruptions.

“The market will remain under-supplied over an extended period (two to three years) due to prolonged under-investment.

“Global exploration and production (E&P)’s capital expenditure (capex) has been on a steady decline since 2014 due to long-term demand uncertainty, tighter access to financing and greater push for environmental, social and governance (ESG) considerations,” he said.

Since the beginning of the year, the Bursa Malaysia Energy Index (KLENG Index), which tracks O&G counters, has not moved in tandem with the rise in crude oil prices.

The index only gained 5.85% year-to-date (YTD) despite Brent having rallied from US$78 per barrel which was reported on Jan 3.

According to data from Bloomberg, out of 25 constituents in the benchmark index, 13 counters have gained YTD (as of Monday), 11 counters were down and only one counter was unchanged.

Only Hibiscus Petroleum Bhd, Deleum Bhd, Alam Maritim Resources Bhd, Coastal Contracts Bhd and Petra Energy Bhd have put on double-digit gains in their share prices since January.

Other O&G players such as Handal Energy Bhd, Sapura Energy Bhd and Yinson Holdings Bhd were the top index losers, having declined by 22.5%, 20% and 18.67% respectively since the beginning of the year.    

UOB Kay Hian research analyst Kong Ho Meng believes fundamentals will prevail and that earnings are the real determinant of stock performance.

He is of the view that only selected O&G stocks will be direct beneficiaries of the oil price rise as most players are heavily dependent on Petronas contracts.

“The most direct beneficiary to current high O&G prices is Hibiscus and certain downstream stocks, while Petronas Chemicals Group Bhd will also enjoy higher petrochemical prices whilst benefiting from certain fixed feedstock arrangements with its parent company.

Additionally, Kong shared that the research house has downgraded its call on the sector to "market weight" as it believes the sector valuations had re-rated ahead on oil price sentiment.

“While oil prices may remain volatile (on upcoming interest rate cycle, Iran nuclear deal and OPEC+ decision), prices may likely hover above US$80 per barrel,” the research house shared.

Reuters on Monday reported that oil prices soared to their highest since 2008 due to delays in the potential return of Iranian crude to global markets and as the United States and European allies consider banning imports of Russian oil.