O&G counters decline on oil price woes

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KUALA LUMPUR (Jan 18): Oil and gas (O&G) related counters fell in the mid-morning trades today, as Iran is ready to increase its crude oil exports, deepening the global oil price woes.

The United Nations nuclear agency said on Saturday that Tehran had met its commitments to curtail its nuclear programme, according to Reuters.

The report added that the United States immediately revoked sanctions that had slashed the Organization of the Petroleum Exporting Countries (OPEC) member's oil exports by around two million barrels per day (bpd) since their pre-sanctions 2011 peak, to little more than 1 million barrels per day (bpd)

At the point of writing, the international traded Brent Crude fell 1.69% to trade at US$28.45 per barrel, while the US Crude Oil index dropped 1.53% at US$28.97 per barrel.

The decline in oil prices does not bode well on the oil and gas counters that are listed on Bursa Malaysia.
 
At 11.12am, Petronas Gas Bhd led ecliners by losing 36 sen or 1.68% to trade at RM21.10 apiece, after 107,100 shares exchanged hands.

PetGas was the second largest loser across the bourse. The current price gives it a market capitalisation of RM41.79 billion.

Shell Refining Company (Federation of Malaya) Bhd, which was the third top loser, fell 35 sen or 6.34% to trade at RM5.17 sen, with about 1 million shares traded, valuing it at RM1.59 billion.

Petron Malaysia Refining and Marketing Bhd also dropped 19 sen or 5.22% at RM6.24, albeit thin trading volume of 900,100 shares. The current price gives it a market capitalisation of RM1.69 billion.

Uzma Bhd fell eight sen or 4.6% to trade at RM1.66, while Petra Energy Bhd declined two sen or 1.75% at RM1.12.

Public Invest Research told clients in a research note today that it foresees a prolonged low oil price scenario, pending Iran’s oncoming production levels, and other non-OPEC producing countries’ ability to continue its supply level with lowered production cost levels, owing to continued efforts to enhance cost efficiencies, largely through innovative technology.

"They have therefore held on ever so strongly… perhaps by their fingernails now, at current oil price levels," the firm added.

Despite noting that Iran will increase its output up to 1.5 million barrels by end-2016, PublicInvest, however, estimated a slower ramp up of additional 500,000 barrels per day by mid-2016 and a further 500,000 bpd by end-2016 in phases, as Iran upgrades its infrastructure, which were reportedly experiencing leaking pipelines upon testing towards end of last year.

"Nevertheless, their aggressiveness would continue to gear them up to return as one of the world’s largest oil producers," it said.

According to the firm, crude oil prices have been challenged by a combination of too much supply, coupled with the effect of the US dollar price movement and new worries over China’s cracking economy.

"With the downtrend to continue, we anticipate more spending cuts, though yet to be issued by many oil majors who are pressed to maintain their dividend payouts, and perhaps further impairments, as last year’s write-downs could have been insufficient, as oil price dips further south," it added.

This has prompted the firm continue to remain Neutral for the O&G sector. Its top picks are Uzma and Petra Energy.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)