We gather from the 14th Asia Oil &Gas Conference held from June 7 to 9 that the outlook for the
O&G industry should be rosier going forward, thanks to the recovery in crude oil price.
However, most industry experts acknowledge that 2009 would not be a very good year for the
industry although they expect a recovery in 2010. Maintain Overweight on the sector.
However, oil price is not always a function of demand and supply. This is because when oil price
peaked at US$147 per barrel, there was still an oversupply of oil in the market. This oversupply has persisted since January 2008. We understand that supply to date stands at 85m bpd while demand is lower at 83.5m bpd. This demonstrates that the non-fundamental aspect (such as the strength of US$ against major world currencies) plays a big role in influencing the direction of crude oil price. Maintain Overweight. We are more bullish on the industry currently simply because we think oil price will stabilise at US$60/barrel level, which is good enough since it is higher than our estimated costs for both shallow (at about US$20/barrel) and deepwater production (at US$40-50/barrel). As long as there is profit to be made, new jobs should flow out soon and this would benefit the local O&G supporting companies in terms of orderbook replenishment and also sustain charter rates.
Our top picks are Alam (BUY, TP: RM1.95 ;I HAVE 4 lots), Kencana (BUY, TP: RM2.14), Petra Perdana (BUY, TP: RM3.50) and Wah Seong (BUY, TP: RM2.58).