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Oil price are rallying high, and will be expected to go higher. Oil refinery margins are going higher as the northern hemisphere of the earth enter into winter season.

With LNG gas at a tight supply and elevated high price, fossil oil had came into the picture. The reopening of the global economy after a series of Covid19 lockdown measure also continue to draw down on oil reserve in the US and China.

As an investor, what is there for you to capture the shifting of energy prices?

Hengyuan Refining Company Berhad (HENGYUAN - 4324) might be one of your consideration if you are looking to expose your investment in the oil and gas sector.

The pandemic from Covid19 had make prices very volatile, and had damage the demand of oil previously, hammering refinery margin into a tight spot. However, a series of global event had ensure that refinery company will be enjoying sweet margin at least for the next 6 months.

Source news from REUTERS

Global oil refiners crank up output as margins recover to pre-COVID levels | Reuters

According to the news, refinery margin in Asia are hitting above USD 8 per barrel

Excerpt taken from the source news


Singapore complex refining margins, a proxy for refiner profitability in top oil consuming region Asia, hit their highest since September 2019 above $8 a barrel this month.

The margins had turned negative last year, plumbing a record low in May, as the pandemic eroded demand.

In Northwest Europe, refining margins topped $9 last week, the highest since April 2020, while U.S. Gulf Coast refining margins are currently around $14, up nearly three-fold from the same period a year ago, Refinitiv Eikon data shows.

Why Hengyuan refining will be all out in the balance month of 2021?

1. Demand for oil increase (transportation fuel - diesel, petrol)
2. Coal and natural gas supply crunch lead to higher price, power plant shift to oil as input to produce power.
3. Winter season in northern hemisphere of the earth
4. Hurricane Ida damage oil refinery capacity at US
5. Hengyuan to maximize refinery production before entering Year 2022 to save on Malaysian imposed prosperity tax for Year of Assessment 2022

The current price range had indicated that Hengyuan is rested at support line from the uptrend movement.

Technical rebound on the up trending line will potential see Hengyuan trading at RM 5.50. The uptrend movement is supported with brighter oil and gas investment sentiment. Fundamentally, it is backed with good refinery margin. Prospect of Hengyuan going for a big gain is very high.

The current price range below RM 4.30 will be a strategic entry to invest into Hengyuan to benefit from the booming refinery business.


According to data, Hengyuan refinery capacity is 156000 barrel a day

Let's take refinery margin for HENGYUAN AT USD 9 per barrel.

156000 barrel x USD 9 x RM 4.15 (conversion) x 30 days = RM 174.8 million

Since we can expect the refinery margin to last for at least the coming 6 months, HENGYUAN POTENTIAL GROSS MARGIN EARNING for next 6 month can be as high as RM 1.05 billion.

That will be looking at a potential of 50 cents earning each for the next 2 quarters.

At the current price which is below RM 4.30, Hengyuan definitely look very attractive especially with the rising demand of oil and better oil refinery margin in play.


Projection is based on estimation, and I am not responsible for the accuracy of the data provided. Please be informed, I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.

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