The slump in crude oil prices has analysts and fund managers seeing potential value in selected oil and gas (O&G) stocks.
Maybank Investment Bank Bhd (Maybank IB) said in a report that the steep correction in O&G share prices offered “periodic, alpha opportunities” to pick up oversold, undervalued and sentiment-depressed stocks.
The research house added that while impairment risks and poor upcoming fourth quarter 2015 results are sentiment-negative, it however said that these were known events that have been largely priced in with the recent selldown.
“While we acknowledge that an absolute recovery is still a distance away, the volatility in crude oil and fall in O&G share prices have opened a window of opportunity to trade beaten down stocks,” it said yesterday.
Areca Capital Bhd chief executive officer Danny Wong concurred that some O&G stocks were oversold.
“Some of them have been seriously pared down, and valuation for these stocks are actually quite attractive. In light of the fall in oil prices, it is understandable to discard these stocks, but I do believe that oil price will bounce back,” he said.
Crude oil hovered at around US$30 per barrel yesterday.
Wong expected oil prices to pick up in the second half of the year.
“I think the price of oil is near the bottom. For some stocks, it will be best to hold on for the next six months as I believe they will rebound by then.”
Meanwhile, an analyst from a local bank-backed brokerage said while interest in O&G stocks was likely to be subdued until the price of oil stabilised and the market adjusts to the new oil price level, investors should prepare for a recovery.
“We believe investors should focus on oil service providers, such as Uzma Bhd and KNM Group Bhd, which are less sensitive to oil price movements or capital expenditure cuts, given their more stable, long-term contracts exposure.
Another analyst said investors of O&G stocks should consider “sticking their necks out” as now would be a good time to enter the market and pick up some energy stocks that had been pared down.
“We don’t believe oil prices are sustainable at the US$30 level and think stocks will, at some point, rally along with an oil price recovery.
“We think this is an opportune entry point to consider selectively adding oil service stocks.”
Maybank IB had upgraded Icon Offshore Bhd, Perisai Petroleum Teknologi Bhd, SapuraKencana Petroleum Bhd and UMW Oil & Gas Bhd to trading “Buy” with unchanged target prices.
The research house also maintained its “Buy” call for Dialog Bhd, which, with its three upstream assets/operations (namely Balai RSC, Bayan OSC and D35/D21/J4 PSC fields) had a low-grade impairment risk.
MIDF Research pointed out in an earlier report that Crude oil prices started 2016 on a steep downtrend as both Brent crude oil and West Texas Intermediate (WTI) crude oil had slipped by 24.1% and 22% respectively in just 14 trading days.
“The steep declines were largely due a slew of pessimistic news such as fear of rise in Iranian exports, International Monetary Fund’s downward revision for economic growth, turbulent Chinese stock market and swelling US crude inventories.”
An industry observer meanwhile opined that the local O&G stocks were not oversold, as there was a shortage of demand and growing supply or oil.
“Global economies have slowed down and demand has dropped,” he said, adding that the lifting of sanctions on Iran would exacerbate the matter.
Oil prices continued to plummet in reaction to the lifting of Iranian sanctions in a historic deal with the US earlier this month.
Iran, which was the second-biggest producer in the Organisation of Petroleum Exporting Countries (Opec) before sanctions were intensified in 2012, was targeting an immediate increase in shipments of 500,000 barrels a day according to its Deputy Oil Minister for Commerce and International Affairs, Amir Hossein Zamaninia.
According to reports, the nation plans to add another half million barrels within months.
Another industry observer said the US plans to lift its ban on crude oil exports would also aggravate the oil supply situation.
Congress voted in December to lift the 40-year-old ban on crude oil exports as part of a broader spending bill that averted the possibility of a government shutdown.
According to Bloomberg, the US produced more oil in 2013 than it imported for the first time in two decades, and in June 2015 it surpassed Russia and Saudi Arabia to become the world’s biggest producer of oil and gas.