KUALA LUMPUR (June 9): Oil and gas (O&G) stocks were the most active stocks on Bursa Malaysia in the first hour of trading today after oil prices rose in a global recovery with Covid-19 pandemic lockdowns easing, while top producer Saudi Arabia said that it would end its extra voluntary production cuts after June.

As at 11.06am, shares in Sapura Energy Bhd rose half a sen or 4.76% at 11 sen. The stock, which was the fourth active stock in the morning trade today, saw some 141.21 million shares transacted.

Hibiscus Petroleum Bhd was up two sen or 2.94% at 70 sen, valuing the group at RM1.08 billion. It saw some 98.94 million shares traded.

In the sixth place was Velesto Energy Bhd, which rose half a sen or 2.94% at 17.5 sen with 90.67 million shares traded.

Bumi Armada Bhd rose one sen or 3.92% at 26.5 sen with 89.27 million shares traded.

KNM Group Bhd rose half a sen or 1.96% at 26 sen, valuing the group at RM666.8 million at 11.58am. The stock saw some 42.07 million shares traded.

Bursa's Energy Index, which tracks the share prices in O&G-related companies, rose 23.11 points or 2.78% to 854.69 points at 11.23am.

Meanwhile, Reuters reported that oil prices climbed today, paring losses from the previous session as markets broadly rose on growing confidence in a global recovery with pandemic lockdowns easing.

Reuters said Brent crude futures went up 1.4% or 56 cents to US$41.36 a barrel, while US West Texas Intermediate crude futures rose 1.3% or 50 cents to US$38.69 a barrel after dropping by US$1.36 yesterday.

In a note today, AmInvestment Bank Research analyst Alex Goh said even though a measure of optimism has returned for crude oil prices, the research house expects oil producers to proceed with their planned production cuts for this year given that demand globally remains depressed amid the prolonged Covid-19 movement restrictions and social-distancing measures across the world.

He said Petronas, which earlier indicated intention to maintain domestic capital expenditure (capex), has announced cuts of 21% for capex and 12% operating expenditure this year.

"This is similar to the 20% to 30% capex reductions for 2020 which were earlier announced by Exxon Mobil, Royal Dutch Shell, Saudi Aramco and Petrobras.

"In 1Q20 (first quarter of 2020), the new contract awards to Malaysian operators dropped 74% q-o-q (quarter-on-quarter) and 70% y-o-y (year-on-year) to RM569 million, with the worst fallout yet to come in 2Q20 onwards," he noted.

Given that the US oil inventories remain high at 534 million barrels (24%) y-o-y, the research house has raised its crude oil forecast to US$40-US$45 per barrel from US$35-US$40 per barrel for 2020, while maintaining US$45-US$50 per barrel for 2021.

"We maintain our view that most participants in the sector, except those in storage and recurring maintenance services, will be adversely impacted.

"Those with upstream production-sharing contracts such as Sapura Energy and Hibiscus Petroleum will suffer from lower prices and offtake, followed by fabricators such as MMHE and offshore support providers Bumi Armada and Velesto Energy.

"However, the earnings of service providers involved in maintenance and tank storage facilities such as Dialog Group Bhd and Serba Dinamik Holdings Bhd will be resilient against the cyclical nature of industry dynamics," he added.

The research house has upgraded the O&G sector to "neutral" from "underweight" given the resumption of some optimism to the sector, while its "sell" calls have moderated.

"We have just added Petronas Chemicals Group Bhd, which has a high correlation to oil price direction, to our 'buy' together with Dialog Group and Serba Dinamik.

"Nevertheless, as we continue to view the still low oil prices and earnings of upstream service companies to be worse than the previous 2015-2017 downcycle which led to multiple financial distress to O&G corporations, we retain our 'sell' calls on Bumi Armada, Sapura Energy and Velesto Energy," Alex added.