Middle East woes fuel demand for oil issues

China's big three oil companies made solid gains yesterday as recent tensions in the Middle East threatened to keep oil prices high.

PetroChina rose 4.9 per cent, CNOOC gained 4.3 per cent and Sinopec 2.6 per cent.

HSBC analyst Gordon Kwan attributes the strength in oil prices to the recent terror attacks in Saudi Arabia and Morocco but said that there were other factors underpinning the surge in Chinese oil companies' shares.

'Low US oil inventories with the summer driving season beginning this weekend, the collapsing US dollar, and an [Organisation of Petroleum Exporting Countries] meeting again on June 11, means we have a perfect recipe for higher oil prices in the second half of this year,' he said.

Nymex crude futures yesterday edged past US$29 per barrel during early European trade.

Mr Kwan said the weakening US dollar would be a key consideration when Opec meets on June 11 in Qatar.

'A lower dollar would translate less into their own currencies, so they would be more inclined to cut supply so they can maintain the equivalent purchasing power,' he said.

Investors have been paying special attention to PetroChina in recent weeks after American billionaire Warren Buffet increased his stake in the company to 9.1 per cent. Last month, his investment company Berkshire Hathaway bought about 197.3 million shares in PetroChina for US$42 million.

Mr Kwan said an additional factor bolstering PetroChina's stock was President Hu Jintao's planned visit to Russia next week where he would probably be accompanied by a PetroChina delegation and possibly seal the $1.7 billion Siberia-Daqing oil pipeline joint venture.

KGI Securities analyst Samuel Chua said the oil companies' gains were significant but had to be taken in the context that H shares generally had been doing well in the past few days.