■ Interesting few months ahead
Brent has moved up 40% from its lows. Whilst the US rig count has continued to fall, the US production has not 'rolled-over' and US inventories are at multi-decade highs. Our view is that as long as US production promptly declines from here, the current level is broadly supportable, given improving demand fundamentals; but failure to do so could bring a second temporary correction, which would then be followed by a fundamentally-supported price increase toward year-end. The wild card to watch over the summer will be Iran, with the P5+1 meeting set for 30 June.
■ APAC stocks—wide performance variance
In our January '15 report 'Be prepared', we showed the wide variance in APAC energy stock performance. As we update the performance chart, we can see relative outperformance from both Chinese and Japanese stocks and PTT; however, smaller E&P-focused plays such as Senex, Beach and Kris have trailed Brent's performance.
■ Playing defense or offense?
If investors expect another price decline and need to be invested in the sector, we would expect the relative outperformers thus far such as Sinopec, Inpex and PTT to continue to perform well. If however, current price levels are held in the summer (with US production roll-over) and there is further upside toward year-end, we would see opportunity in laggard stocks such as InterOil, Drillsearch and Kris Energy. (Read Report)
Source : Credit Suisse Asia Pacific Equity Research