Sector Update Oil & Fertilizer

High oil prices and increasing pressure on the USD/VND exchange rate generally have a positive impact on the Oil & gas companies, while not having much impact on the fertilizer group. 

Crude oil prices have increased sharply by more than 17% since the beginning of 2023 and at one time traded at 94 USD/barrel before decreasing again in recent days. The main reason is that OPEC+ and Russia continue to cut their production. Many studies forecast that oil prices will continue to trade at high levels in 2024.

The impact of high oil prices on the business activities of Oil & Gas companies can be high or low depending on each enterprises’ business nature. Among them, companies providing upstream services (PVD, PVS) will benefit the most if oil prices stay high for a long time. Meanwhile, business activities of midstream/downstream enterprises are rapidly affected by changes in oil prices.

For fertilizer companies, the impact of oil prices on business activities is quite neutral. Because, in case oil prices increase, input gas prices increase at the same time, creating motivation for fertilizer prices to increase, so the total impact is eliminated. However, it should be noted that the movement of fertilizer prices depends more on fertilizer supply/demand.

Another factor affecting the business activities of the oil, gas and fertilizer group is that the USDVND exchange rate is gradually increasing since August 2023. For most businesses in the oil and gas industry, rising exchange rates have a slight positive impact on business results, thanks to their high proportion of revenue in foreign currencies, low debt, or, input costs and sales prices are adjusted according to the average exchange rate of the last 10-15 days. 

For the group of fertilizer businesses under PVN, the USDVND exchange rate risk is low due to low Debt balance. In addition, these companies also have revenue in USD from exports to help offset the impact of input gas prices in USD.

The market price of most oil, gas & fertilizer companies in our analysis portfolio has nearly reached the target price for 2023business results. We are reviewing and updating the business outlook for the period 2024-2026 and valuation with a view to the end of 2024. This information will be reflected in our upcoming update reports.