Energy exposure

 10 October 2020

Dear Fellow Investor,

Today will review our energy exposure.

Our energy exposure includes 2 holdings: Dialog and Wellcall Holdings. The below Bloomberg chart of Dialog shows on balance more  insider buying (green arrows) than selling(red arrows).  The same could be said for Wellcall. Both have solid balance sheets/ reputable management and are able to earn money in spite of Covid related issues.  The test of quality management is how they adapt to adverse circumstances. Both have met the test.

Overall the downstream Malaysian Energy companies such as Gas Malaysia and Pet Dag have been  stable  in the down trending KLSE. Cash flows and low debt have supported their prices. However; upstream energy companies have not performed as well due to high debts and liquidity issues. 

 

Fleet Street Letter from London which I subscribe to  reports on energy this week and I wish to share some of their insights about energy.

The above Bloomberg chart shows the crude oil demand chart since 1990.

 

Before the Covid crash  the world consumed 100 million barrels per day. That briefly dropped to 82 million barrels per day but has recovered to 92 (MBPD)  

 

As lockdowns end expect oil demand to recover. Supply has been constrained due to lockdowns and that should be a catalyst for higher oil prices.

Green or alternative  energy is the hot topic but it will take more than 20 years to replace fossil fuels according to Charlie Morris editor  of the Fleet St Report.

 

“I love the sentiment behind alternative energy, but other than nuclear, I remain unconvinced. Consider how much diesel is consumed in making, transporting, constructing and maintaining a wind turbine and how much oil is consumed in the process.

In the future, will there be enough energy generated by wind turbines to build the next generation of wind turbines? Their construction would require electric mining equipment, electric smelting, electric shipping and electric haulage. Maybe this happens one day, but not for at least 20 years. Electric trucks? Nikola (NKLA) was a fraud. Electric ships would surely require a nuclear reactor.”

 

With oil recovery expect the spill over to benefit the Malaysian economy and our local market.

Saturday 11 am will hold a zoom briefing on the oil market.