11/01/2010 (Bernama), Kuala Lumpur - The bad winter conditions in most of the Northern Hemisphere and demand for fuel, has sent oil and coal prices soaring.

OSK Investment Research said in a research note on Monday that as these effects are generally expected to be short term, the impact to the fundamentals of the oil and gas (O&G), transport and plantation sectors should be minimal.

"However, there might be a short spike in positive sentiment for the O&G sector while airlines may see some weakness," it noted.

Impact on the broader Malaysian market should be minimal.

"There may be more of an impact on counters involved in the processing, distribution and usage of coal such as Tenaga, Sino Hua-an and Scomi Marine," the report noted.

"With the ongoing cold weather situation, we believe the oil price will continue to stay above US$80 per barrel in the short term," the report stated.

OSK Research said the oil price should stabilise at US$70-US$80 per barrel in 2010 and at this price, most of the O&G projects are already commercially viable.

OSK Research said it continues to maintain a bearish view on the shipping industry although it has a "buy" call on MISC due to potential corporate exercises.

OSK Research said the bad weather had had no direct impact on Malaysia's air carriers.

"Nevertheless, as oil prices head north following the extreme cold weather in the Northern Hemisphere, the risk of higher fuel cost resurfaces.This is especially if the oil price should break US$100 per barrel or for airlines that practice naked fuel hedges," OSK noted.

In terms of the plantation industry, OSK Research said there could be some indirect positive impact on demand for palm oil if the cold spell results in increased demand for biodiesel.

"However, if the cold weather is prolonged, it could impact palm oil demand for cooking oil purposes. Cooking oil producers tend to decrease the proportion of palm oil used in blends in cold weather," OSK said.

This, according to OSK Research, could result in the premium commanded by soybean oil against palm oil to widen from the current level of US$106 per tonne.