How low can it go?

Oil price has hit an alarmingly low of USD30/bbl, a level not seen since 2004. Based on Rystad Energy’s estimates, 40% of the Top 20 oil producing nations is no longer profitable at this level. 30%, comprising 6 countries (5 OPEC members and Russia) can still survive and sustain production at sub-USD20/bbl level. Anything below USD17/bbl will see Russia fall out. The price volatility is likely to persist in 2016. There will be a knee-jerk reaction to this setback but trading opportunities abound in this volatile period. We are BUYers of Yinson, BArmada, Dialog, KNM.

Who survive, who do not?

The crude oil price has been volatile and has fallen to an intraday low of USD30.78/barrel yesterday, the lowest since Apr 2004. Based on a study by Rystad Energy, 40% of the 20 biggest oil producing nations are no longer cost productive (i.e. UK, Brazil, USA). 2 OPEC members, Angola and Nigeria are also affected, with production cost/bbl of USD35.40 and USD31.50 respectively. 10 OPEC members that make up the top 20 list, which produce 96% of the cartel’s output, averaged USD14.52 per barrel cost. Saudi Arabia/Iran’s costs of production/bbl is USD9.90/ USD12.60.

How much to produce a barrel of oil in Malaysia?

There are no public/official figures on this. Technically, every O&G field has different cost metrics due to differing reserves, capex and opex, just to name a few.

Trade the cycles

The O&G stocks are likely to experience a negative knee-jerk reaction to the recent downswing in oil prices, again. Nevertheless, we foresee trading opportunity to periodically pick up oversold stocks in this period of market volatility/cyclicality. Our preferred BUYs are Yinson, BArmada, KNM and Dialog.

Source: Maybank Research - 8 Jan 2016