Analysts say the low crude oil price will hit upstream players more as downstream companies are primarily in the business of refining crude oil into various products, besides being engaged in the related marketing and distributions

The current cheap price of crude oil has proven to be a boon for petroleum refiners like Petron Malaysia Refining & Marketing as oil producers are roiled by lower prices, laying off of staff, and scaling down of exploration, says a report.

Although hardly covered by analysts, shares of Petron have moved higher in recent days despite the weak broader market. Year-to-date, Petron Malaysia has gone up 10 per cent while the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) has fallen 8.4 per cent. The company recently posted a stellar second quarter performance.

Oil prices have fallen significantly and have caused some major oil producers to cut staff, scale down exploration, and cutting back expenses.Despite that, analysts say indeed, oil refineries actually benefit from lower crude prices because such prices encourage consumption.

Analysts say the current scenario is perfect for refiners and petroleum refiners are finding themselves in a sweet spot. Analysts say the slump in oil prices essentially mean that refiners are now able to buy oil at a cheaper price. They say the low crude oil price will hit upstream players more as downstream companies are primarily in the business of refining crude oil into various products, besides being engaged in the related marketing and distributions.

'Refineries could process cheaper crude and generate higher profits on fuels such as diesel or petrol,' a local bank-backed analyst says.

'It may reduce the margins for refiners, but it can also help increase consumption by the public with the low price. The increased consumption could potentially offset lower margins,' he adds.

With many predicting that the low oil price will continue, Petron Malaysia will continue to benefit. Analysts say Petron is currently trading at an undemanding price-to-earnings (P/E) of about 10 times.

'We believe that low forward PE’s and returns will continue to attract investors.

There is also a significant chance that these metrics will improve as higher profit expectations cause forward PE’s to decline,' an analyst says, adding that the stock would appeal to more investors if Petron Malaysia propose a dividend payout.

In 2012, Petron Corp, a unit of conglomerate San Miguel Corp, acquired the Malaysian businesses of oil refiner ExxonMobil – 65 per cent of Esso Malaysia Bhd and the wholly-owned ExxonMobil subsidiaries, ExxonMobil Malaysia and ExxonMobil Borneo.

Petron Corp’s wholly-owned unit Petron Oil and Gas International has assumed control of the three companies.

Petron Malaysia operates Petron Port Dickson Refinery (PDR), which has a rated capacity of 88,000 barrels per day, producing a wide range of petroleum products which include gasoline, diesel, liquefied petroleum gas (LPG), industrial and commercial fuels, and aviation fuel.

The company has implemented several initiatives including the construction of two additional storage tanks to reduce vessel delivery turnaround times and improve loading efficiency, among others.

Petron Malaysia has a total of 10 refineries and terminals (including affiliate terminals) in the country. In addition, the company also has more than 560 Petron service stations nationwide. Apart from retail station, Petron Malaysia also provide markets a wide range of industrial fuel products including Automotive Diesel Oil (ADO), Mogas, Kerosene and Jet A1 (aviation fuel).

Boosting Petron Malaysia revenue is its aviation contracts. The company currently has aviation contracts with AirAsia, Malaysia Airlines and major carriers in the Middle East. In the second quarter ended June 30, Petron’s net profit jumped to RM73.37mil compared with a net loss of RM1.51mil during the quarter. Its revenue for the quarter stood at RM2.26bil.

In the first six months, Petron’s net profit stood at RM130.19mil, a significant turnaround from the RM8.23mil net loss over the same period last year. Its revenue stood at RM4.1bil. Petron Malaysia says sales volumes slightly improved in the first six months of the year reaching 15.09 million barrels versus the 14.96 million in 2014 with strong sales coming from the commercial sector and an upswing in gasoline volumes.

In a statement, chairman Ramon S. Ang says: 'We have shown our resilience and more importantly, our focus in accomplishing strategic projects. Petron is poised to grow its business over the long-term despite a challenging business environment.'

To increase its market presence and reach, Petron Malaysia is expanding its network of service stations. The company, together with its sister companies Petron Fuel International and Petron Oil (M), has already completed several new Petron stations this year in key locations with more in various stages of construction. Shell Refining Company (Federation Of Malaya), another listed refiner on Bursa Malaysia, is also experiencing a good run on low crude oil prices.