18 Mar 2020 / by Unicapital Securities
FREE Special Report: Oil Sector Outlook, with Target Prices for PCOR, SHLPH, PNX (March 2020)
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Our Partner Broker’s Recommendation
Stay away from oil stocks. Given the unfavorable developments in the sector, we reiterate our bearish view on the industry and recommend clients to limit exposure in oil stocks. We expect huge inventory losses and challenged margins for the first half as the developments affect both the supply and demand side of the industry.
Possible upside is the anticipated lower prices for diesel and gasoline (due to extremely cheap crude) in the near term, which can propel increased local sales volume. If crude stays at this level, we expect SHLPH and PCOR to benefit from this through better refining margins. Among the three listed companies, we expect SHLPH to be the most resilient in weathering through this storm (Fig. 3).
Summary of Recommendations and Target Prices:
Petron Corporation (PCOR) – HOLD, Target Price: PHP 3.66
Pilipinas Shell (SHLPH) – HOLD, Target Price: PHP 31.50
Phoenix Petroleum Phil. (PNX) – HOLD, Target Price: PHP 12.06
Our Partner Broker’s Analysis
As we entered 2020, global oil prices continued its year-end rally and peaked at $71.3/bbl amid expectations that global demand will start to recover driven by the developments in US-China trade war. However, it did not take too long before the narrative started to change. The outbreak of COVID-19 triggered a downfall and pushed oil prices to trade below $50/bbl by end of February as demand concerns overwhelmed the optimism from the Phase 1 deal.
No more support from the supply side
In the recent months, drops in oil prices were subdued as OPEC+ continued to support prices through production cuts. However, OPEC and allies were not able to arrive at a directive after Russia rejected the supply cut agreements. As a result, Saudi Arabia announced massive price cuts for the month of April along with reports of production hikes. This pushed benchmark crude prices to drop by almost 30% driven by fears of oversupply amid the worries over global demand caused by the COVID-19 outbreak.
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