Energy : Power

Energy : Power

Concern increases over rising oil supply in 2014
There has been a concern that global crude oil price in 2014 might
weaken from 2013 after Iran could reach an agreement with the world
powers (five permanent members of the United Nation Security Council
plus Germany or P5+1) about its nuclear program. The deal resulted in a
decreased economic sanction on Iran, which also means Iran can export
oil to other countries again after it had been banned from exporting oil by
the US and EU since January 2012 for its nuclear development that was
against the United Nation Charter. As a consequence of the sanction,
Iran’s daily oil production and export dropped from 3.2 million barrels in
June 2012 to only 2.6 million barrels in October 2013, making Iran fall
from its rank of the second largest oil exporter in OPEC to the sixth.
Accordingly, as Iran will be able to produce and export more oil after the
sanction was relieved, global oil supply in 2014 will increase; and when
combined with new supply from off-OPEC producers like the US and
Russia, global crude oil price might be depressed.

- FV still higher than current price despite worst case scenario of oil price at US$80
Nevertheless, increasing world GDP in 2014 is believed to help boost an
oil demand, especially of major oil consumer like China. Chinese oil
demand in 2014 is expected to grow by 3.8%yoy due to a rising demand
from the transportation sector. At the same time, OPEC will still play an
important role in preventing the oil price from significantly declining by
reducing its oil production quota. This factor will help negate an effect
from the aforementioned new supply. However, Dubai and Brent crude oil
prices have still not decreased at present, standing at US$108 and
US$112/barrel, respectively, which are still higher than our assumption at
US$100/barrel (Dubai). According to our sensitivity analysis of an oil
price in 2014 at various level and its impact on prices of oil stocks,
including PTT and PTTEP, at the oil price of US$80/barrel, 2014 fair value
of PTTEP and PTT are B169 and B354, respectively, which imply
substantial upside from the current share prices.

- Maintain positive outlook for PTTEP and PTT
We assign NEUTRAL for the sector and reiterate BUY for
PTTEP([email protected]) and PTT([email protected]). Although the oil price might
be fluctuating in the short term, it would not go below US$100/barrel
(Dubai), which is our assumption, so the current share prices still have
high upside. Long-term investors should gradually accumulate PTTEP and
PTT as both of them have high potential for future growth.