How to pick oil and gas stocks

Vietnam Petroleum Technical Services Joint Stock Corporation (HNX: PVS) will gain nearly from the beginning to the end of a project.

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Outlook for the oil and gas industry

Indeed, oil prices are driven by both supply and demand variables, with supply influenced by geopolitical tensions and global demand. Demand for oil and gas, in particular, has rebounded slowly, even in 2024. However, Yuanta Securities Vietnam forecasts that demand will be stronger in 2H2024, because the global economy has been improving since the final six months of this year.

The global  geopolitical tensions are unlikely to finish anytime soon. From 2022 until the present, oil prices have seen two upswing cycles, the first of which happened when the war between Russia and Ukraine caused oil prices to spike and then cool at the end of 2022; the second came when the Israel - Hamas conflict started.

According to studies conducted by organizations and experts throughout the world, oil prices will remain around $80 per barrel.

Mr. Nguyen The Minh sees two distinct groups in the oil and gas industry: oil and gas production and oil and gas services.

First, 2024 will be a negative year for the oil and gas production sector since the strong rising cycle in oil prices has ended. Unless geopolitical tensions in the Middle East escalate, oil prices might soar beyond $100 per barrel; otherwise, oil prices are just $80 per barrel.

"The production of oil and gas is determined by two factors: the price of oil and the cost of capital." This group's net profit margin is determined by the difference between bid and ask prices, which is determined by the Brent oil price. The ask price varies by region; for example, the ask price in Singapore differs from that in Vietnam and other nations. So, if oil prices stabilize, it will rely on whether the net profit margin is enough, but I don't believe it will be large," Mr. Nguyen The Minh stated.

When oil prices stop rising sharply, equities in the oil and gas production industry will no longer be appealing. Except in the case of rising and widespread geopolitical conflicts, this scenario may alter.

The second industry is the oil and gas services sector. The most crucial factor is that oil prices remain high or just modestly fall. If oil prices remain around $80 per barrel, shares in the oil and gas service industry remain appealing.

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Recommendations for investors

Regarding the prospects of stocks in the oil and gas services sector, returning to the scenario of oil prices remaining over 80 USD/barrel, exploitation rig rental services will thrive, as demand is relatively high. This will be PetroVietnam Drilling and Drilling Services Corporation's (HoSE: PVD) strong suit.

"When the Block B O Mon project is completed in the near future, a shortage of mining rigs is very likely, but this is also an advantage of PVD. If PVD's contracts with other nations expire, it might return the rig to Vietnam for future exploitation. I believe PVD will be the most prominent stock in this group," Mr. Nguyen The Minh stated emphatically.

Mr. Nguyen The Minh stated that the Vietnam Petroleum Technical Services Joint Stock Corporation (HNX: PVS) will gain nearly from the beginning to the end of a project. Because, after PVD has moved the exploitation rigs offshore, PVS will be in charge of maintaining those rigs.

Furthermore, Mr. Nguyen The Minh believes that there are two noteworthy enterprises in the midstream segment that carry oil and gas from oil and gas fields to the mainland: Vietnam Gas Joint Stock Corporation (HSX: GAS) and Vietnam Petroleum carry Joint Stock Company (HSX: PVT).

GAS, in instance, has a monopoly in Vietnam's gas business, supplying input gas to 100% of gas power plants, 70% of urea manufacturing facilities, and 100% of domestic industrial parks. PVT is the sole Vietnamese firm involved in shipping for the oil and gas industry. Profitability is determined by shipping prices, however PVT's pricing will lag behind international shipping rates.

"I believe the long-term outlook for oil and gas services stocks is very good, but these stocks will not bring high profitability in the short term. Investors should therefore consider monitoring and holding some equities in their portfolio," Mr. Nguyen The Minh stated.