This incident disrupts six per cent of world oil output and 50 per cent of Saudi Arabia’s output — equivalent to five years of global oil demand growth. — Reuters photo
KUCHING: The coordinated attacks on key Saudi Arabian oil facilities over the weekend will have its impact on Malaysian oil and gas (O&G) players, analysts said, first seen in a trigger of oil prices experiencing its steepest hike in 30 years.
This incident disrupts six per cent of world oil output and 50 per cent of Saudi Arabia’s output – equivalent to five years of global oil demand growth.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) said based on statistics, the current global oil market is undersupplied by some 480,000 barrels per day (bpd) over the next four quarters up to the third quarter of 2020 (3Q20).
“Factoring in the supply disruption, oil demand will far exceed supply, which is positive for global oil prices,” it said in a report following the Saudi incident.
“We maintain our second half Brent oil price assumption at US$65 to US$70 per barrel, but there could be upward bias to our current assumption in the short-term depending on the timeline of production resumption.”
Meanwhile, it said the supply disruption of this scale should result in a more bullish sentiment for the Brent oil prices and sector in the near term, putting O&G stocks under the spotlight.
“Hibiscus Petroleum Bhd (Hibiscus) is the direct proxy to benefit from an oil price recovery,” it highlighted.
“In our coverage, Petronas Chemicals Bhd stands to benefit from a recovery in petrochemical prices and Petronas Dagangan Bhd with a possible inventory lagged gain.
“We have buy calls on Serba Dinamik Holdings Bhd, Bumi Armada Bhd, Velesto Energy Bhd and Kelington Group Bhd, which are all service providers, and their earnings do not directly benefit from higher oil prices.
“However, we believe these stocks would likely see higher interest in view of the current bullish oil price sentiment.”
Public Investment Bank Bhd (PublicInvest Research) shared in this bullish sentiment in the O&G market, expecting it to persist in the near term, providing trading opportunities especially to the pure oil and gas players.
“While Saudi Arabia is expected to bring back a portion of oil output from its other processing facilities, the time frame of 100 per cetnt restoration remain unknown. This situation is expected to put the US shale oil which produces light and sweet oil in focus,” it said.
“US President Donald Trump have said that US would be tapping into its strategic petroleum reserve if needed in the wake of attacks on Saudi oil. Hence, we expect the supply disruption will be just temporary.
“While this incident undoubtedly will cause the biggest global supply disruption ever in history albeit temporarily, we reckon the price spike signals more geopolitical worries ahead. The US insisted on blaming Iran, which could lead to US and Saudi strikes retaliation – something that risks sparking open war.”
Having said that, PublicInvest Research believe all these will keep oil prices elevated and provide near-term trading opportunities.
“Among local O&G players, Hibiscus is the biggest beneficiary given its direct proxy to the oil prices as an oil producer in the upstream segment,” it proposed.
“We retain our overweight stance on the sector with crude oil prices likely to hover around US$65 to US$70 per bbl levels in the near term. Over the longer term period, we think the oil price is fair to trade at US$60, reflecting its real fundamental of global demand and supply.”
Meanwhile, Macquarie Equities Research (MQ Research) in its report expects a five per cent risk premium embedded into oil prices going forward.
“The attack will require the oil market to change its view that Saudi Arabia’s oil infrastructure is impenetrable to military attacks and sabotage,” it added in the report.
Some of the stock gainers from this incident include Sapura Energy Bhd, whereby its exploration and production (E&P) segment a beneficiary of higher oil prices, especially with 4Q production ramp-up.
“Petronas Chemicals is another likely beneficiary from higher oil prices. Average selling price tends to move with oil prices while costs are fixed on long-term gas contracts; but medium-term risk on demand if oil disruption is prolonged,” it said.
“Petronas Dagangan will also benefit as the Mean of Platts Singapore (MOPS) price trend returning to positive trajectory should help offset previous market concerns on negative trend.
“AirAsia Group Bhd is well hedged against Brent crude oil risks. Meanwhile, spreads have been relatively well behaved vs flat prices with only marginal movements.”