Daiwa expects oil and gas prices to remain high for a longer period, with ENN Energy Holdings and NEWAY as top picks

Daiwa published a research report stating that Brent oil prices fell yesterday (10th) after soaring to a high of $117 per barrel the previous day due to U.S. President Trump predicting that the war with Iran might end soon. However, the crisis in the Strait of Hormuz has reshaped the risk-return profile of the oil and gas sector; even considering that the situation may ease to some extent, it is expected that the central price of oil and gas will remain at a higher level for a longer time, with ENN Energy Holdings (02688.HK) and NEWAY (603699.SH) preferred as targets for their positive outlook on the sector.

Daiwa indicated that short-term risk-return is dominated by the U.S.-Iran conflict and the effective closure of the Strait of Hormuz, which has significantly pushed up TTF (Dutch Title Transfer Facility) and liquefied natural gas benchmark prices (JKM); although after Trump stated that the war might end soon, Brent crude oil and Dutch gas trading center prices have fallen about 30% from their highs, it is expected that oil and gas prices will still remain structurally high in the medium term, with Brent crude oil prices fluctuating in a new range of $75 to $90 per barrel, and liquefied natural gas benchmark prices fluctuating in the range of $15 to $18 per million British thermal units.

Daiwa maintains a cautious stance on urban gas stocks, believing that the recent rise in natural gas prices will erode their near-term profit margins, and also believes that China Resources Gas (01193.HK) and other distributors with a high proportion of liquefied natural gas will become the main victims if the Dutch gas trading center and liquefied natural gas benchmark prices remain high for longer than expected