KUALA LUMPUR: Oil and gas (O&G) stocks on Bursa Malaysia took a beating yesterday after US crude oil price collapsed to its lowest in more than 30 years, amid Covid-19-induced supply glut, market specialists said.
They, however, said the international benchmark price of Brent crude was unlikely to copy the US’ West Texas Intermediate (WTI) crude, which plunged into a negative territory at -US$37.63 per barrel on Monday.
The Energy Index was the worst performer among Bursa’s indices, with nearly all its constituents being in the red.
The index dropped 6.05 per cent or 43.48 points to 674.87 ahead of a 2.22 per cent or 31.39 points decline in the FBM KLCI to 1,381.73.
Big decliners included Petron Malaysia Refining & Marketing Bhd (down 21 sen or 5.25 per cent to RM3.79), Dayang Enterprise Holdings Bhd (down nine sen or 7.2 per cent to RM1.16), Hengyuan Refining Company Bhd (down nine sen or 2.9 per cent to RM3.01) and Yinson Holdings Bhd (down 21 sen or 3.89 per cent to RM5.19).
Three Petronas’ listed units namely Petronas Dagangan Bhd shed 52 sen or 2.51 per cent to RM20.20, Petronas Chemicals Group Bhd dropped 42 sen or 7.34 per cent to RM5.30 and Petronas Gas Bhd eased four sen or 0.26 per cent to RM15.34..
Juwai IQI chief economist Shan Saeed said Malaysian O&G stocks were under pressure due to lower oil and weaker demand in the short term.
“But once the oil prices stabilised, the share prices of O&G stocks will go up,” he told the New Straits Times yesterday.
Shan is optimistic that oil prices would stabilise in the next two to three months, before trading between US$30 and US$40 per barrel this year.
“It Is normal for markets to move viciously in the short run. Investors who hold their nerves will win. Nothing to panic at this stage.
“Asia is the future and the region will drive the global economy as the lockdown is nearly over in China, while other Asian economies are gradually opening up.”
“Hence, there will be more demand for oil that leads to higher production. Thus, commodity prices will go up. There will be a supply constraint too and pressure on the supply side,” he added.
OANDA senior market analyst for Asia Pacific Jeffrey Halley said it was inevitable that oil prices would remain under pressure.
Storage had quickly become elusive with a potentially 20 million barrels per day of oversupply in the global markets net of the Organisation of the Petroleum Exporting Countries (Opec) agreement with other producing countries, he added.
“Production will have to be cut further, or demand generated from somewhere to change this imbalance. Oil prices, therefore, will remain under pressure and thus, so will the share prices of Malaysian oil and gas companies,” he told the NST.
Halley said Malaysia’s overall economy was not dependent on oil.
“Oil prices drop is a symptom and not a cause. Oil and gas are one part of the Malaysian economy, not built on it like for example, Saudi Arabia,” he said.
Halley said the direction of the local economy was reliant on how both Malaysia and the world at large recover from the Covid-19 pandemic.
He said Brent was not immune to the massive oil glut in the world and its prices looked set to move lower.
“I do not anticipate a disorderly crash though. (Monday’s crash) was limited to the WTI May futures on Monday, not the WTI spot market,” he said.
He said O&G companies in this climate would have to concentrate on preserving as much cash as possible to carry them through the downturn.
“This inevitably means shutting unprofitable production, a freeze on exploration and unfortunately, job losses,” he said.
Meanwhile, Shan said bond investors including banks would suffer as they had given loans to shale gas companies at the collateral of US$40 per barrel.
“There will be layoffs in the energy market in the US. Capital expenditure will also be reduced between US$300 billion and US$800 billion this year. Companies cannot take the pressure of WTI oil prices trading at US$10-US$15 per barrel. They will burn their cash flow as the price is below the cost,” added Shan.
At press time, Brent crude was traded at US$22.83 per barrel, while WTI crude at -US$4.5 per barrel.
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