In another few days (Not really), we will leave year 2016 and say hello to 2017. This few years, oil has bee hit hard with oversupply which caused by oil producer doubled their production and also the economic slowdown in china causing massive decline in price which saw price touch $26.55 on January 20.
Because of this, we saw O&G company share plunge. If you did monitor O&G share in klse, you can see a massive selling pressure on O&G counter. Companies like Bumi Armada and even Malaysia national oil Company, Petronas was hit.
Chart from Maybank investment online. Bumi Armada share price. Price has been declining since 2014 and hit its lowest in 2016 at around RM0.50
Chart from Maybank investment online. Even Petronas, Malaysia oil Company was hit. Share has been declining since 2014 but has slightly recovered in 2016.
In 2014, we saw the price of oil was traded around $107/per barrel and has decline to lowest in January 2016 due to supply glut. When OPEC announce its member to cut oil production which will start in January next year, oil price recovered above $50.
What I Expect with Oil Price in 2017
Oil is a commodity where we can manipulate the price. The sharp decline in the price is caused by supply is more than demand. To overcome this, demand must be at least on the same level with supply or even better, demand is more than supply. If that happen, sure oil price will experience sharp climb. That is the basic principle.
I personally believe, oil price has hit the bottom. I still remember in mid 2015, people saying that we cant see the bottom for Oil price just yet. But since something done by OPEC to cut the oil production, it shows how desperate they are to manipulate the price again.
Non OPEC members will as well join forces and agrees to cut oil production to reduce supply glut.
If all parties works together, in 6-8 months oil price can go back to normal and O&G company can see green on their balance sheet again.
Whats in it for KLSE O&G counter
With oil price start to climb again, those companies will be able to see profit again. Bumi Armada massive profit decline saw its share price plunge from around RM4.00 in 2014 to RM0.50 in 2016.
KNM share price was traded RM1.00 in 2014 and hit RM0.32 in 2016.
I say its time to buy to a good O&G companies shares. We might not able to see price of these share to increase in the near term because people fear of oil price not being able to stay at least above $55-$60 per barel is still there. But for the long term, I can say they will do good again.
I will remember Warren Buffet advise, “be greedy and people afraid and be afraid when people are greedy”.