Story of the day

Oil majors globally have seen strong performance, largely due to robust oil prices. Notably, Chinese oil majors have been leading the pack in 2024, showcasing significant strength in their performance. Share prices of major oil companies worldwide have surged to new heights, primarily propelled by sustained high oil prices, efficient production cost management, and an increase in production levels.

Following the post-Covid recovery period, US oil majors spearheaded the bounce-back in 2021-2022, with the S&P Oil & Gas Exploration & Production Index soaring by 150%.

However, there was a consolidation phase in 2023, during which Chinese oil majors began catching up. Chinese oil majors experienced notable uptrends in both 2023 and 2024, but despite this, they still remain undervalued in comparison to their US and European counterparts.

What does this mean for your portfolio

Recent geopolitical tensions have amplified bullish sentiments in oil markets. The forecast for Brent crude oil prices in 2024 has been revised upwards to USD80-85/barrel, with potential for further escalation due to geopolitical risks.

Events such as increased risks of Iran's direct involvement in conflicts and Ukrainian drone attacks on Russian refineries have contributed to market apprehensions, possibly pushing oil prices even higher, potentially exceeding USD95/barrel in the short term.

The demand-supply outlook for oil appears promising:

• US growth aligns with expectations of a soft landing.
• China's demand outlook is improving.
• OPEC+ is committed to controlling supplies, extending production cuts, and implementing stricter monitoring.
• Global crude inventories are dwindling, indicating a tightening market, particularly as we enter a period of seasonally higher demand.
• The US will likely need to replenish its strategic petroleum reserves at some point.

We like these

Given the constructive outlook for oil prices, preference leans towards energy upstream segments. Chinese oil majors present an attractive investment opportunity due to their undervaluation, potential for State-Owned Enterprise (SOE) revaluation trends, and anticipated catalysts from earnings upgrades.

US oil majors continue to offer growth potential, driven by consensus earnings upgrades and organic as well as inorganic volume growth facilitated by significant M&A activity observed in the previous year.

Below are some equity fund with exposure to energy and commodities sector related*:

• Batavia Dana Saham
• Batavia Global ESG Sharia Equity USD
• BNP Paribas Pesona Syariah
• BNP Paribas Solaris
• Schroder 90 Plus Equity Fund
• Ashmore Dana Progresif Nusantara

*Based on fund fact sheet as per April 2024