Alliance expects crude oil to stay above US$60 per barrel in 2018

KUALA LUMPUR: Alliance DBS Research has forecast a healthier 2018 outlook for the benchmark Brent crude oil price to stay above US$60 (US$1 = RM3.94) per barrel mark.

In a research note today, it said, the Brent crude oil price has breached the key psychological mark of US$60 per barrel.

“We are turning optimistic on the direction of the prices, and our average Brent oil price forecast for 2018 stands at US$60-US$65 per barrel,” it said.

Alliance DBS said the projection was supported by robust oil consumption demand, which, coupled with Organisation of the Petroleum Exporting Countries’ adherence to output cuts and extension of them until end-2018, has led to steady global inventory drawdowns.

“This is a promising signal as far as market rebalancing is concerned and will continue to support a positive oil price trajectory hereon, as long as the supply side is wilfully capped by market participants,” it said.

The research firm said the projection was based on the development along oil and gas (O and G) value chain and recovery signs in global capital expenditure (capex) spending by oil majors.

However, Alliance DBS said ,Malaysian job flows will continue to be lacklustre.

It foresaw better contract flows this year with global capex budgets expected to remain resilient and accelerate in 2019 albeit from a low base as oil price averages to the US$65 per barrel mark.

“We are seeing signs of recovery along the value chain in 2018 for global offshore activities,” it said, adding that O&G service providers with regional or global footprint were well-poised to capitalise on this trend.

Therefore, the research firm said, it preferred stocks with exposure to production activities and/or overseas footprint, namely, Hibiscus Petroleum Bhd, the best Malaysian-listed proxy to rising oil prices; Bumi Armada Bhd, which will see more tender activities for floating, production, storage and offloading vessels on the horizon; and, Wah Seong Corp Bhd, whose earnings were secured by Nord Stream 2 pipe-coating job.

“We also have ‘buy’ calls for Sapura Energy Bhd, which is a large-capitalised Malaysian proxy to rising oil prices; Serba Dinamik Holdings Bhd, which focuses on resilient operation and maintenance activities; and, Pantech Corp Sdn Bhd, which benefits from rising demand for pipes, valves and fittings in refinery and petrochemical integrated development project,” it said. - Bernama