Which company will benefit the most from rising oil prices?

Global oil inventories have fallen steadily since mid-2020.

Russia is a major player in the global oil and gas markets. Russia is the world's second-largest gas and third-largest oil producer, accounting for nearly 17% and 11% of the global output, respectively. Russia is the world’s third-largest oil producer, behind the United States and Saudi Arabia. In January 2022, Russia’s total oil production was 11.3 mb/d (million barrels per day).

By comparison, US total oil production was 17.6 mb/d while Saudi Arabia's production was 12 mb/d. Russia is the world’s largest exporter of oil to global markets and the second-largest crude oil exporter behind Saudi Arabia. About 60% of Russia’s oil exports go to OECD Europe, and another 20% goes to China. In December 2021, it exported 7.8 mb/d. Oil product exports totaled 2.85 mb/d. The production of natural gas and the exported gas volume were 638 Bcm (billion cubic meters) and 238 Bcm, respectively.

The reliance of the European Union and the United Kingdom on Russian gas supplies has increased over the last decade. Natural gas consumption in the EU and UK remained broadly flat in aggregate over this period, but production fell by a third, and the gap has been filled by increased imports. Consequently, the share of Russian gas supplies increased from 25% of Europe’s total gas demand in 2009 to 32% in 2021. Pipeline deliveries from Russia declined by 25% yoy in 4Q21, which contributed to strong upward pressure on hub prices in Europe, which rocketed in 4Q21.

Meanwhile, the importance of Ukraine as a transit country has lessened due to the build-up of additional transit corridors bringing Russian piped gas to the EU and UK. In 2021, transit flows via Ukraine accounted for over 25% of Russia’s pipeline deliveries to the EU and UK in 2021, significantly down from more than 60% in 2009. Therefore, Ukraine remains an important conduit for Russian gas to Europe, since it transits about 8% of the EU and UK combined gas demand. European gas prices surged by 50% on February 24, 2022, to USD 44/MMBtu, following the Russia-Ukraine conflict.

On the other hand, Brent prices nevertheless surged by USD8/b to USD105/b following the news, and daily spot prices for Brent closed at almost USD124/b in the first week of March, on expectations that sanctions against Russia would cripple energy exports. These events are occurring against a backdrop of low oil inventory and persistent upward pressure on oil prices. Global oil inventories have fallen steadily since mid-2020, and inventory draws averaged 1.8 million (b/d) in 3Q20 through the end of 2021, according to the IEA.

In Kis Vietnam’s opinion, rising oil prices not only strengthen market sentiment on the gas stock, but also directly benefit Vietnam Gas Corporation (HoSE: GAS)’s net profit as the majority of its product selling prices are benchmarked to the Singapore FO price, which moves in the same direction as the Brent oil price. GAS will raise the selling price of dry gas, LPG, and CNG by an amount equivalent to the spike in oil prices. Meanwhile, nearly 84% of the volume from the Nam Con Son basin (contributed about 65% of the dry gas volume for GAS) mostly uses fixed prices to supply ToP agreements. Fixed-cost pricing is set according to wellhead prices adjusted up by 2% per year. Thus, it prompts the gross margin of the dry gas segment to expand. From 17.7% in 2021, the general gross margin of GAS will expand to 20.5%/21.5%/22.1% for the best case/base/worst case for oil prices, respectively, from 17.7% in 2021", Kis Vietnam said.