OIL & GAS--NEUTRAL FROM ECMLIBRA

Oil & Gas
Neutral
(maintained)
29th Jun – 5th Jul : US unemployment hit
• Hit by US unemployment data
After hitting 8 month highs last week, oil prices on Friday dipped towards the US$66 level after the US announced unemployment data that was worse than expected. Crude futures however climbed very slightly as traders bought on weakness and closed at US$66.73.at the end of the
day ahead of the 4th of July weekend. We expect that prices will recover as the US continues to report declining stocks and higher rig counts.

During the week, the OPEC said that they would continue working towardstheir 4.2m barrel cut before announcing further supply cuts and that oil prices had also reached their expected level for 2H09 above US$60, a level which would allow the industry to rebuild strength.

• News and views

On global news, Brazil commenced production at Tupi, the largest oil findof the decade while Moody’s investor services said that oil industry field services and contractor costs had started to decline, hence allowing oil majors to continue with their spending programmes. Besides this, some studies have said that the El Nino, should it happen could bring on a stronger hurricane season to the gulf of Mexico the weather phenomenonwas changing its character. Findings however, still appear preliminary.

Local corporate news includes SapuraCrest talking about cost cutting to keep with the changing times. We see it a wise move as oil majors would be looking to squeeze more out of service providers for the next round of tenders. Besides that, Kencana said it was bidding for RM4bn of projects and hoped to have a 25% success rate. They were actively lookingoverseas to diversify earnings portfolio. Also Alam Maritim is also looking to diversify earnings and look into offshore installation with some experienced partners. In Singapore, Sembcorp marine was awarded an
US$237m contract to complete works on a semi-submersible rig for SeaDragon Offshore. No contracts were awarded locally during the week.

• Maintain NEUTRAL on the sector