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Crude oil rally drives oil and gas and offshore plays temporarily higher

The Editor
The Editor6/18/2021 06:30 AM GMT+08  • 4 min read
Crude oil rally drives oil and gas and offshore plays temporarily higher
As crude oil rises, so do some battered oil and gas stocks such as RH Petrogas, Rex International and Marco Polo Marine
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RH Petrogas is a company with negative equity despite reporting a profit of $3.36 million in 1QFY2021. The reason for turning in a profit was partly due to higher crude oil prices and partly higher crude oil production. Interestingly, its average selling price in the first quarter was US$59 ($78.99) per barrel. North Sea Brent is currently priced at around US$73 per barrel, and West Texas Intermediate at around US$71 per barrel.

When asked about unusual trading, the company said that it receives proposals from time to time for possible mergers and acquisitions, joint ventures and/or strategic alliance opportunities.

RH Petrogas’s share price doubled in two trading sessions to 20 cents on June 14. A long white candle on June 15 was followed by a doji and a shooting star, suggesting that short term up-momentum is fading. In the meantime, short term negative divergences have been building. Prices may not be better than the shadow of the doji at 21.5 cents. Support and breakdown is at 17.5 cents.

Unusually, Rex International has signed a conditional sale and purchase agreement to acquire a stake in a producing Norwegian oilfield, just as oil majors are attempting to transition out of oil. Technically, prices appear anxious to rise. The breakout level is the thrice tested at 19.7 cents. Volume is already starting to expand on white candle days. A successful breakout indicates an upside of around 27 cents.

The irony of oil and gas related stocks is that the higher oil price — a result of stronger economic growth, cutbacks in production, and concerns over climate change — is driving up the stock prices of these hard-to-abate companies.

Marco Polo Marine announced on May 14, for the half year ended March 31 (1HFY2021) that its Ebitda had tripled, and the company had turned in a profit. In addition, 20% of the ship charterer’s fleet is now being deployed in the renewable and sustainable energy sectors.

Technically, Marco Polo’s prices have embarked on an uptrend. Based on the chart pattern, a break above 2.4 cents indicates a target of 4.8 cents. This represents potential rather than an absolute truth. The uptrend is likely to be supported by expanding volume, and a turnaround in long term indicators. Immediate support is at 2.6 cents, and needs to be raised to 2.8 cents if prices rise above 3 cents.

As an update, Kim Heng — which had surged consistently till it found resistance at 10.5 cents to 10.8 cents — formed a shooting star on the candlestick chart on June 16. While the bar chart displays an almost perfect staircase — representative of an uptrend — short-term negative divergences have appeared. This may cause prices to rest at a landing for several sessions before resuming the staircase formation. Support is at 8.3 cents, and the breakout is at 10.8 cents.

Kim Heng’s shareholders, on April 23, voted for a resolution to diversify into the renewable sector, including constructing components for wind farms, at an EGM. This triggered the price uptrend.

Elsewhere, following the formation of a shooting star on the chart of Enviro-Hub Holdings on June 8, dojis and black candles have formed and prices have eased. Support is at 9.3 cents and prices have drifted down to the 9.1 cents to 9.2 cents range. If prices fall below these levels, the stock could weaken swiftly. On a positive note, volume contracted significantly as prices eased — an indication that the correction may be temporary.

During the past five sessions, the Straits Times Index (STI) continued to struggle and has drifted lower. In the process, the index fell below its 50-day moving average, currently at 3,167, a tad lower than last week’s level of 3,169. The mild decline of the 50-day moving average may not be a negative signal given the low volume and declining average directional index (ADX), which is down to 10. This suggests that the immediate range remains narrow. The STI has drifted below a support at 3,150. If the range remains narrow as indicated by the ADX, support should appear at the 100-day moving average at 3,092.

Photo: Rex Intl

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