Sector News Flash:
Regional Oil & Gas (Overweight)
One Of The Deepest Cuts In The History Of OPEC
Regional Oil & Gas (Overweight)
One Of The Deepest Cuts In The History Of OPEC
The
IEA confirmed that OPEC has achieved one of the deepest cuts in the
organisation’s history with a compliance rate of 90%. We believe that such
efforts by OPEC members and non-members have been well rewarded. Oil is now
trading at around USD10/bbl higher than it would have been without such cuts.
This is positive for the overall oil markets. We maintain our OVERWEIGHT on the
Oil & Gas sector, our Top Picks are: Perusahaan Gas Negara, Petronas
Chemicals, PTT Global Chemicals, Keppel Corp.
¨ One of the deepest
cuts in the history of the Organisation of the Petroleum Exporting Countries
(OPEC).
The International Energy Agency (IEA) reported on Friday that production from
OPEC fell to 32.06m barrels per day (mbpd), falling 1mbpd from its October
baseline. The IEA said that this is one of the deepest cuts in history of OPEC.
Total global supplies fell by almost 1.5mbpd in the month of January. The
agency also upgraded additional global demand by 100,000bpd to 1.4mbpd for
2017, another positive note to the oil markets.
¨ The producers’
efforts have been well rewarded. This has been a historic effort by all the
producers involved, where they have all set aside political and religious
differences in order to achieve this historic high compliance rate. We believe
that the producers have been well rewarded as a result - with what we estimate
of around USD10/bbl higher oil price than had this not been achieved. This is
equivalent to an additional USD15m per day to the producers that took the
1.5mbpd cut, and globally all producers have benefited as a result.
¨ We took a look at
global oil majors share price performance over the past year and year to-date.
The global oil majors share prices have surged at an average of 56% over the
past 12 months, with *Exxon Mobil share price underperforming the global
average with a 3.1% rise, while Petroleo Brasileiro S.A. (Petrobras) was up
250%. However, YTD, the average share price performance averaged at -1.3%, with
BP’s share price down 10% and China Petroleum and Chemical Corporation
(Sinopec) up 12.7%. PTT ’s (PTT TB, BUY TP: THB384.00) share price performed
well, up 68% over the past 12 months, while YTD, it is up 6.7%.
*Exxon Mobil just released its lowest yearly
earnings in 20 years as a result of a downturn in commodity prices and USD2bn
impairment charges.
¨ No doubt, it has been
a great 12 months for the oil majors’ share price performance. However, we believe
that the real earnings improvement would be seen over the next 12-24 months.
That is, when the stability of crude oil price at a higher level would filter
to more activity in the upstream E&P projects that have been put on hold
the past two years. OPEC now seems to be back in the driving seat of the oil
markets, putting more confidence that the worst is now behind us.
¨ We maintain our
OVERWEIGHT on the Oil & Gas sector, with our preference being the mid-stream to
downstream players and selective on the upstream producers. Top Picks are:
Perusahaan Gas Negara, Petronas Chemicals, PTT Global Chemicals, Keppel Corp.
¨ Risk to our expectations are the global
economic slowdown,
which would result in lower demand for global petroleum products and its
derivatives, thus resulting in lower crude oil prices.
Kindly click the following link for the full report: One Of The Deepest Cuts In The History Of OPEC
Kannika Siamwalla,
CFA
Head of Regional Oil
& Gas
RHB Securities
(Thailand) PCL.
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