Tuesday, April 23, 2019

O&G Play Set to Return

It is sad that the most important nation in the world - once the global policeman - is now a rogue nation. Yesterday the U.S. announced that it would impose sanction on any nation that imports Iranian oil (here). I equate this action to the invasion of Iraq by George W Bush in 2003.

Politics aside, crude oil has just broken above last 2 weeks highs of USD72.00 and put in a gain fo USD2.07 to close at USD74.04. It came close to testing the resistance at the horizontal line at USD75.00. 

The current breakout move is a strong move based on rising ADX. Notwithstanding a short-term pullback, I believe this move could eventually test USD80.00 before a more meaningful correction. Thus, I believe we may see another round of play in our O&G sector.
Chart 1: BRENT's daily chart as at Apr 22, 2019 (Source: Stockcharts.com)

Among O&G stocks, I prefer to go with the laggards, such as REACH & SAPNRG. REACH is sitting on a proven reserve and that reserve has just gone up in value. Similarly REACH valuation should also go up.

Chart 2: REACH's daily chart as at Apr 22, 2019 (Source: Malaysiastock.biz)

SAPNRG is in a stronger position after its rights issue. In addition, its major shareholders have invested in the company at RM0.30 per share (which comes with free warrants). This means that the current price is not too far from their cost. If you buy at the same price as the "sponsor", you are in relatively safe position.

Chart 3: SAPNRG's daily chart as at Apr 22, 2019 (Source: Malaysiastock.biz)

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