Overseas-listed oil firms maintained their winning streak last week, notching up fresh highs on international markets.

The sharp increase, due partly to the fresh hike in crude, has prompted investors to consider buying shares in three oil giants - PetroChina, Sinopec and CNOOC.

But experts say investors should avoid acting rashly, predicting the oil rally may not last in the longer term.

"There isn't a clear sign the oil shares will keep shooting up dramatically in two to three years," said Guan Bin, an oil analyst with the China International Capital Corp.

Industry data showing an unexpectedly large decline in US crude oil inventories drove up crude prices last week to around US$32 per barrel - a three-month high since the Iraq War at the New York Mercantile Exchange.

But experts said a further jump by crude is unlikely as prices are already very high.

The real reason behind the oil rally is the bullish stock environment, particularly in Hong Kong, according to experts.

Turnover on the Hong Kong market jumped to its highest level in more than a year last Friday at HK$12.2 billion (US$1.6 billion) as the benchmark Hang Seng index gained around 2 per cent last week, ending at a 9,855.64 - a fresh five-month high.

The index will test the psychologically important 10,000 barrier soon, for the first time since early December 2002.

Mainland-owned H shares reached their highest level in nearly four years last Friday, boosted by the news that the SARS epidemic has been brought under the control.

CNOOC Ltd was the best H-share performer last week, advancing more than 5 per cent.

China National Offshore Oil Corp (CNOOC) - the country's third largest oil player and parent of Hong Kong-listed CNOOC Ltd - said last Thursday its profits surged 88.6 per cent year-on-year to 6.4 billion yuan ($773 million) in the first five months, despite the impact of SARS on oil demand since April.

Buffett's choice

Shares of PetroChina also gained ground on the market with investors cheered up by news that parent China National Petroleum Corp (CNPC) has closed a US$150 billion deal with Russia to pipe Siberian oil to Northeast China for 25 years.

The company's huge west-to-east gas pipeline has been also advancing further.

ING Group, a global financial institution, said in a research report that it views the two events positively as they will act as stimuli for PetroChina and it would maintain its "buy" recommendation for its shares.

"Even with its current operations, PetroChina offers an attractive combination of profitability, valuation and yields," said the ING report.

ING increased its target price for PetroChina to HK$2.30 (US$0.29) a share from HK$2.15 (US$0.27) as it is more optimistic regarding the outlook for future cash flow.

Shares of PetroChina closed at HK$2.15 last Friday.

Investors in PetroChina were treated to a nice surprise in April when it was revealed that Berkshire Hathaway, the investment holding company controlled by Warren Buffett, had joined them by taking a big stake in PetroChina.

In a move that has puzzled many in the marketplace, the investment guru and second richest man in the United States has bought 13 per cent of traded H shares in PetroChina.

PetroChina's H shares represent 11.3 per cent of its share capital, with the remaining 88.7 per cent being owned by parent CNPC.

Buffett has never elaborated on the move, saying only that "we want to buy them cheaper than the same kind of companies in the United States."

Buffett may have many good reasons, but his success story may not be always good for his followers.

"You buy stocks when you predict they will go up, not when they are already expensive," said Guan.

Guan predicted the trading range for PetroChina would be fixed at HK$1.60-HK$2.2 (US$0.28) a share within two to three years.

Buffett's average entry price was HK$1.60 (US$0.20) per share.

Guan said the market performance for CNOOC and PetroChina in Hong Kong would be stable in the long term and a good equity game could be in Sinopec, the country's second largest oil company.

Investors started to favour Sinopec's domestic A shares after the country's social security fund's formal entry to the markets.

The welfare fund entrusted its holdings of 300 million A shares of initial public offering in Sinopec.

"Investors were encouraged by the news of the country's social security fund's formal entry to the domestic bourses on Monday," said Li Jian, an analyst with United Securities.

The fund started buying stocks and corporate convertible bonds on the secondary market through six fund management companies from June 9.

Experts estimate a steady upward trend for Sinopec.

Guan said Sinopec's major plus point is its downstream business, which will mainly affect its performance on the market.

Experts said the H shares could also drop in the short term without a policy stimulus.

"Oil shares may see steady gains, but lack the momentum to power ahead," said Guan.

Experts said China's energy policy will play a major role in the zigzagging indices of oil firms.

The country's energy mix and the oil industry's persistence in following a go-out strategy will heavily affect stocks, according to experts.

(Business Weekly 06/17/2003 page6)