Oil and refinery shares are benefitting from the Organization of the Petroleum Exporting Countries (OPEC)’s decision to extend its supply cut by 9.7 million barrels per day until the end of July.
Prices are also expected to go up as production continues to stay low from 2020 to 2021.
That latest extension by OPEC and its allies will continue to reduce 10 per cent of global production until the end of July – instead of June as previously agreed.
The move is expected to shore up oil prices which have been badly hit by the outbreak of coronavirus.
The international benchmark Brent Crude was trading above US$50 before the price war and the consequent crash in March. Brent went to the lowest at $16.95 per barrel on April 22 before bouncing back up to $26.15 per barrel on May 1.
As of 12:30 p.m. on Monday, Brent oil futures were trading at $42.98 following a 1.6 per cent gained in the morning. Thai Oil said on Monday that Brent is expected to be in the range of $40-$45 per barrel this week.
KTB Securities also said on Monday that the OPEC+ move to extend cuts to July is expected to lead to a supply deficit by October. Global oil production is also expected to stay around 7.7 million barrel per day from July until the end of 2020.
In 2021, the production rate is presumed to be around 5.8 million barrel until April 2022. This will inevitably increase oil prices even if oil demand is still low.
They pointed to PTT Exploration and Production (PTTEP) and PTT as the biggest beneficiaries, as PTTEP’s prices are linked to global prices while PTT will benefit from being PTTEP’s biggest shareholder.
PTTEP’s share price already went up by 5.32 per cent from 98.75 baht at the opening to 104 baht at the intermission. PTT’s share went up by 4.43 per cent from 39.5 baht to 41.25 baht in the same period of time.
Refineries such as SPRC, TOP, BCP, and IRPC will also be expected to benefit from a predicted increase in Gross Refining Margin and stock gain in the second quarter of 2020.
Stocks that are expected to lose out from the increasing costs are petrochemical (PTTGC, SCC and IVL), aviation (AAV, BA, THAI and NOK) and EPG and TASCO.
