So many years, many people thought, working in oil and gas industry is the best place to earn high salary.
For many years many people never thought that the world energy demand never fall and company continue generate high revenue.
Before I step further , let me tell you the business segment in oil and gas industry
Q1 : WHAT IS THE BUSINESS SEGMENT IN OIL AND GAS INDUSTRY?
Oil And Gas Business Segment:
1. Upstream(Exploration, offshore engineering, subsea, exploration)
2. Downstream (LNG, onshore engineering)
3. Mixtream (Separate oil,gas and debris)
4. Refinery (Extract kerosene, gasoline)
5. Petrcohemical (process polyethylene , ethane)
This is the simple Economy rules u may need to know:
High Oil price- cause high raw material cost
Low Oil Price- cause low raw material cost
> Sector that HIGH PERFORM during high oil price is UPSTREAM.
-more project and exploration activity can take place during this period. More oil company will generate high revenue by selling the crude oil to the end user at high price.
- So what happen recently, the supply is surplus then demand. Recently, Iran oil sanction production have been uplift. This will increase pressure in world oil production
> Sector that HIGH PERFORM during low oil price is PETROCHEMICAL & DOWNSTREAM.
-Basically these sector more and less process end user product. Chemical such polyethylene use to produce plastic. Do you see any plastic material decrease in price recently? I guess know. Due to inflation rate high, the demand remain the same.
Gradually, low crude oil price shall benefit, Transportation, Export, Services, Tourism , F&B and Construction sector.
Q2 :DOES CURRENT LOW OIL PRICE GIVE NEGATIVE IMPACT TOWARD STOCK MARKET?
I took Malaysia as example because I'm living in Malaysia.
Over the years, oil revenue had contributed almost 30% of government income. The current low level of oil price pressing down our oil producer country to trim their budget.
The less revenue in oil price cause Malaysia government to introduce new economy mechanism to sustain their income.
The rationalization of tax, by implement the GST, impose the subsidy .
26-27 January 2016, Malaysian parliament set to debate on Trans-Pacific Partnership Agreement(TPPA) whether to sign or not. This is an important event to mark our next move in new economy demography.
Like it or not, I believe Malaysian government is desperately to sign the agreement as this will attract more foreign investor to Malaysia.
INDEX KLCI VS WTI CRUDE PRICE
Ok, let take a look at Figure 1 and 2. The green vertical line show the year 2008-2009 when market correction took place.
When the oil price slump in 2008 to 2009 from the peak 140usd to lowest 34usd within one year, it cause a global market correction.
Subprime Crisis Direct Link:
https://business.cch.com/images/banner/subprime.pdf
Infect the correction actually co-current with Subprime Crisis in 2008. After the issue resolved, KLCI eventually move higher than previous peak in 2008 although crude oil failed to break previous high at 140usd.
Figure 1- KLCI MONTHLY CHART
FIGURE 2- WTI CRUDE OIL MONTHLY CHART
STOCK IN DIFFERENT SECTOR
Take a look at figure 3, 4 and 5. Every stock have their own movement base on their structure business. When we talk about stock market, we talk about business. Every stock give different indicator.
OCNCASH is export base company
SUPERMX is rubber company
SKPETRO is under oil and gas industry
From the chart we can see, although when so many people predict current economy is not good, you can see some sector remain firm making profit and move uptrend. Only oil and gas sector remain downtrend.
FIGURE 3- OCNCASH MONTHLY CHART
FIGURE 4- SKPETRO MONTHLY CHART
FIGURE 5- SUPERMX MONTHLY CHART
So I may conclude, every stock have their own movement. Don't panic when other panic.
The stock market is not crash yet. The recovery phase is about to begin.
I will elaborate more in my next blogging about market correction
STAY TUNE....
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