KUALA LUMPUR: Malaysia's energy stocks surged on Friday, driven by a sustained rally in oil prices amid escalating concerns over tensions in the Middle East.
The Bursa Malaysia Energy Index gained 4.07 per cent or 34.87 points to close at 892.68 points.
Several major oil and gas services firms saw hefty increases in their share prices.
Hengyuan Refining Company Bhd surged 23.40 per cent or 55 sen to RM2.60, while Dayang Enterprise Holdings Bhd rose 9.87 per cent or 22 sen to RM2.45.
Hibiscus Petroleum Bhd rose 5.48 per cent or 12 sen to RM2.31, Petron Malaysia Refining & Marketing Bhd gained 14 sen or 3.12 per cent to RM4.62 and Bumi Armada Bhd rose 4.17 per cent or two sen to 50 sen.
Dialog Group Bhd, meanwhile, edged up 2.8 per cent or six sen to RM2.20, Alam Maritim Resources Bhd jumped 20 per cent or half a sen to three sen, while Yinson Holdings Bhd remained flat at RM2.65.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the rise in crude oil prices seems to have a positive impact on energy stocks, as the military conflict in the Middle East remains highly uncertain.
He believes the conflict has involved other countries, and the risk of larger nations becoming involved cannot be entirely ruled out.
Therefore, he said, traders and investors are closely monitoring the situation for the time being.
"It really depends on how long the conflict will last. So, I believe the rally is not sustainable, as the demand for oil is evolving, especially with the proliferation of electric vehicles (EVs), which is expected to accelerate moving forward," he told Business Times.
This is further reason for Malaysia to transition to renewable energy (RE), as crude oil prices are highly volatile and often subject to geopolitical risks, he added.
On a broader level, Afzanizam said the global rise in oil prices is expected to drive up the cost of crude oil imports, as Malaysia relies on imported petrol for domestic consumption. This situation could significantly affect the government's fuel subsidy costs.
However, he pointed out that the strengthening of the ringgit could help offset some of the effects.
"Furthermore, the war's impact is also evident in financial market sentiment, with market traders and investors showing reduced risk appetite. This shift will likely drive demand for highly liquid investments, such as money markets, as investors seek to safeguard their capital," he said.
Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said the impact of rising oil prices on local energy stocks largely depends on how much the tension escalates.
If the situation continues to intensify over an extended period, it could drive oil prices higher, creating a favourable environment for energy stocks to perform well.
"Investors may want to keep a close watch on these developments to identify potential opportunities in the energy sector," he noted.
Thong also said while rising crude oil prices may contribute to inflationary pressures, there could be a silver lining.
It might accelerate the transition to alternative energy sources such as RE as governments and industries push for a more sustainable and resilient energy infrastructure. This could open doors for long-term investment in the renewable sector.
CIMB Securities, in a note yesterday, said stocks sank as oil prices kept rising amid the world's wait to see how Israel will respond to Iran's missile attack from Tuesday.
It noted that a barrel of Brent crude, the international standard, leaped five per cent to settle at US$77.62 after starting the week below US$72.
"It's potentially on track for its biggest weekly percentage gain in nearly two years," it said.
The rise in oil prices comes after US President Joe Biden revealed on Thursday that US and Israeli officials were discussing the possibility of a strike on Iranian oil facilities.
Iran, the world's seventh-largest oil producer, currently pumps nearly three million barrels of oil per day, placing its output at the centre of the market's concerns as the situation unfolds.
On Thursday, Brent crude rose 5.03 per cent to US$77.62 per barrel, while US West Texas Intermediate increased 5.15 per cent to US$73.71 per barrel.
This has pushed the total rise in oil prices this week to over eight per cent, the highest since January.