- New catalysts for higher oil price seen for next year.
- Investors are eyeing OPEC meeting on production cut on Dec 6
KUALA LUMPUR: Oil and gas stocks may be headed for a better year in 2019 as crude oil price claw back the current losses to trade over US$70 per barrel from January onwards.
The energy index, which represents the stocks, rebounded on Monday from its one-year low as crude oil price rose, but the index may continue to stay volatile until the end of the year, analysts said.
They said this gives investors the opportunity to hunt for bargains.
The looming weakness in current crude oil price stems from concerns over a global supply glut, exacerbated by waivers given by the United States to continue purchasing oil from Iran, one of the analysts said.
Brent crude oil price marked its eighth week of losses after declining marginally by 0.2 per cent last week to US$58.71 per barrel.
Brent crude has traded around US$66 per barrel on average for the last one month.
On Monday, the Brent rebounded 4.86 per cent to US$62.35 as at 2pm.
As a result, oil and gas stocks the likes of Bumi Armada Bhd, Carimin Petroleum Bhd, Dayang Enterprise Holdings Bhd, Deleum Bhd, Dialog Group Bhd, Hengyuan Refining Company Bhd, Hibiscus Petroleum Bhd, and KNM Group Bhd also rose, giving the energy index a single-day gain of 2.97 per cent.
MIDF Research oil and gas analyst Noor Athila Razali expects the crude oil price will continue to remain volatile towards the end of the year, due to persistent geo-political uncertainty and trade war between China and the US.
"This is because of concerns on oversupply of crude oil (as a result of President Trump allowing eight nations to continue importing oil from Iran as well as the US pumping in another one million barrels per day into the market) and weakening demand due to the strengthening of US Dollar," she told NST Business.
However, Athila said the crude oil price will gradually recover to trade over US$70 per barrel from January next year onwards.
“We expect more visibility on US foreign policies and sanctions on Iran by then,” she said.
Athila also expects oil demand to be more firm next year owing to the strengthening of regional currencies.
“We also believe that the recovery in crude oil price will stem from the almost equilibrium level between supply and demand, hence we do not think that this current low crude oil price environment would persist into 2019,” she added.
JP Morgan has also set a forecast on Brent crude at US$73 per barrel for next year.
Stock market analyst Nazarry Rosli said oil and gas firms’ profit margin is very much in tandem with the oil price and any catalyst for a higher oil price will in turn drive higher share prices.
“Investors are eyeing a meeting by the Organisation of the Petroleum Exporting Countries (OPEC) on December 6. They are expected to cut production to boost oil price. This bodes well for the local oil and gas firms. Hence, it is a good time to accumulate the stocks,” he said.