PETALING JAYA: Brent crude oil price went below US$30 per barrel over the last two days as global demand for oil is set to decline as more countries go into lockdown.
Several countries in Europe, such as Germany, Portugal and Spain, have tightened borders and restricted the movement of citizens.
Spain and Philippines have enforced a nationwide quarantine, while Austria was limiting people’s movement and gathering.
In Indonesia, its citizens were asked to work, study and worship from home.
Back home, the government is imposing two weeks of restricted movement and travelling, as well as closing down school, universities and shops starting today. Oil and gas (O&G)-related stocks on Bursa Malaysia have seen a punishing sell-off since last week after Saudi Arabia initiated a price war with Russia.
This was further exacerbated by the fire and explosion at the megaproject Pengerang Integrated Complex in the south of Johor.
The project is the single largest downstream project undertaken by Petronas worth more than RM100bil.
AmInvestment Bank Research has a bearish view on the O&G sector and downgraded it to “underweight.” It expectes local O&G service providers to record lower earnings than in 2014-2017 when oil fell from US$100 per barrel to US$30.
“Regardless of upstream, midstream or downstream segmentation, we expect the overall global demand destruction from Covid-19 on top of the Saudi-led price wars will continue to dampen industry sentiments in the foreseeable horizon, ” it said in a report yesterday.
The research house maintained its “sell” call on Bumi Armada
, Dialog Group, SAPURA ENERGY, Serba Dinamik and Velesto Energy, despite some stocks having already declined almost 50% in two weeks. “Given that the decimation to oil prices and companies’ earnings are likely to be even worse than the 2014–2017 down-cycle which led to multiple financial distress to O&G corporations, we have applied a further 20%–30% discount to five-year lows to the stocks which have already reached our fair values, ” it said.
AmInvest said that the fire in Pengerang is unlikely to have a significant impact on earnings prospects of the local O&G sector.
It points out that the impact from the governments’ movement control order to curb the spread of Covid-19 and the ongoing Saudi-Russia price war have caused a plunge in crude oil prices.
Global oil demand is expected to decline in 2020 for the first time since 2009, according to the International Energy Agency (IEA)
The agency said that the global oil demand already fell by 2.5% in the first quarter of 2020, wiping out 2.5 million barrels per day (md/d).
However, it expects that oil demand to recover in the second half of the year by 1.1 mb/d compared with the second half of 2019.
“The Covid-19 crisis is affecting a wide range of energy markets, including coal, gas, and renewable, but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels, ” IEA was quoted as saying.
The Organization for Economic Cooperation and Development earlier this month said global economic growth would grow by 1.5% in 2020, down from its previous estimate of 2.9% before the outbreak of the Covid-19.
Source: The Star