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Want To Invest In Oil & Gas Stocks? Here’s 1 Thing You Should Know

Oil prices have nearly doubled since February 2016. As an example, the price of WTI Crude Oil was at US$29.44 per barrel on 12 February 2016, according to Bloomberg. This was the low point for WTI Crude Oil since oil prices started sliding in mid-2014. Today, WTI Crude Oil’s price is 87% higher at US$55.32 per barrel.

But over the same period, there have been Singapore-listed oil & gas stocks that have done horribly. Ezra Holdings Limited (SGX: 5DN), Nam Cheong Ltd (SGX: N4E), and Triyards Holdings Ltd (SGX: RC5) are good examples. After running into severe trouble with their businesses, the trio have suspended the trading of their shares on 20 March 2017, 21 July 2017, and 6 September 2017, respectively.

Here’s how the three companies’ stock prices have fallen from 12 February 2016 to their respective trading-suspension dates:


Source: S&P Global Market Intelligence

Other oil & gas stocks that are still actively traded, such as Pacific Radiance Ltd (SGX: T8V) and Vallianz Holdings Ltd (SGX: 545), also serve as instructive examples. The table below shows how the duo’s stock prices have collapsed since 12 February 2016:


Source: S&P Global Market Intelligence

The main point here is that the movement of oil prices need not have any links to how the prices of oil & gas stocks move.

Ultimately, it’s the oil & gas stock’s business fundamentals which matter. Ezra, Nam Cheong, and Triyards ran into hot water because they borrowed heavily and severely weakened their balance sheets, to the extent that they had to suspended their shares from trading while sorting out their respective debt-related issues. Pacific Radiance and Vallianz have seen their businesses deteriorate since 12 February 2016, judging by the severe decline in their earnings per share (see table below).


Source: S&P Global Market Intelligence

There are many obstacles that can stand between rising oil prices and an oil & gas company’s stock price growth. It’s the obstacles that we investors have to focus on.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.