KUALA LUMPUR: Brent crude oil rose above US$50 (RM203) a barrel yesterday, leading to a stronger ringgit against the US dollar and Bursa Malaysia erasing losses.
The ringgit appreciated to 4.0765 at 5pm, as the Brent was boosted by United States government statistics which showed a sharper-than-expected drawdown in crude stocks.
The benchmark FTSE Bursa Malaysia KLCI, which had been flattish since last week, added 0.13 points to close at 1,631.09 points yesterday.
Early this week, the US Energy Information Administration said the country’s crude stockpiles fell 4.2 million barrels to 537.1 million barrels. This was the steepest weekly drop in seven weeks.
At press time, July Brent crude on London’s ICE Futures exchange rose 31 cents to US$50.05 a barrel, its highest since November last year.
It was reported that Goldman Sachs, which forecast oil to dip to US$20 a barrel before a recovery, had turned around to say the market had flipped into a deficit this month.
Inter-Pacific head of research Pong Teng Siew noted that many in the investing community had been expecting a recovery in oil prices. “We are just entering the mid-year as the rise in oil and gas (O&G) is starting to pick up pace. Speculation aheadof next week’s Organisation of the Petroleum Exporting Countries (Opec) meeting is keeping prices elevated.
It is most probably going to keep going higher than US$50 per barrel,” he told Business Times yesterday.
Opec will meet next Thursday in Vienna to discuss the O&G markets.
On the impact on O&G services counters on Bursa Malaysia, Pong said there was unlikely to be immediate gains as yet.
“Sentiment has improved but overall, it is still weak. And since many of the listed companies are contractors rather than oilfield owners, it will take a while for higher and sustained prices to trickle down.
“Whether or not this rise in O&G prices would lead to oil majors like Petroliam Nasional Bhd (Petronas) reinstating their earlier trimmed budgets... well, it will depend if this momentum sustains. Currently, we have a lot of idle assets in the market,” he said.
The O&G sector has been on the backburner of institutional investors for some time. Like other sectors, it has been affected by the broader market sentiment.
While there had been a rebound in oil prices since they sank to a low of US$27 a barrel in August last year, Pong said, the pace of climb was slow and investors were cautious.
“It might be too early for investors to buy into O&G counters trading on Bursa Malaysia because it might take a while for rising oil prices to translate to oil majors like Petronas, awarding higher valued contracts,” he added.
On his top O&G picks, Pong cited Deleum Bhd, SapuraKencana Petroleum Bhd, Petronas Gas Bhd and Petronas Dagangan Bhd.