PETALING JAYA: With Brent crude oil surging past US$91 per barrel last Friday, industry observers believe this is the strongest sign yet that oil prices will be supported by a number of factors moving forward.
Despite the mild, expected pullback yesterday to under US$90 per barrel, economists and fund managers continue to see elevated oil prices to be sustained, potentially benefiting a number of oil and gas (O&G) companies on Bursa Malaysia.
Brent sweet crude touched US$91.17 at the end of last week.
This was its highest since Oct 19, following what analysts said were due to heightened geopolitical concerns and the determination of the Organisation of the Petroleum Exporting Countries and its allies (Opec+) to maintain production cuts.
Tradeview Capital chief investment officer Nixon Wong said that the crude oil price environment will persist in the medium term.
It will be heavily influenced by the skirmishes in Europe and the Middle East, he said.
“On top of that, underpinned by the US Energy Information Administration (EIA) forecast of record-high demand for 2024 and next year, coupled with the extension of Opec+ production cuts, many are anticipating that the elevated crude oil price environment will hold out.
“Street estimates for 2024 range from US$80 to US$90 per barrel,” he told StarBiz.
Meanwhile, AmInvestment Bank Research (AmBank Research) said in a recent report that the current fundamentals did not reflect a medium-term price level in excess of its full-year forecast of US$85 per barrel.
This was as a rollover of Opec+ production cuts into the second half of 2024 was uncertain.
The brokerage maintained its “overweight” call on the O&G industry, perceiving that the current oil price environment was providing a trading opportunity.
This was especially for companies in the sector which are exposed to the exploration and production subsegment, as they will be able to command stronger selling prices.
Tradeview’s Wong pointed out that the fate of the domestic O&G sector hinges primarily on the capital expenditure or capex cycle of local titan Petroliam Nasional Bhd (PETRONAS).
Referring to the “PETRONAS Activity Outlook 7th Edition: 2024-2026”, he said: “There are more confident prospects ahead, with most O&G service sub-segments expected to experience increased investments and activities.
“This strategic approach aims to counter potential long-term declines in natural production.”
For 2024, he said PETRONAS’ commitment to maintain its capex target within the RM50bil to RM60bil range is expected to result in sustained high work orders from the group.
This is particularly in upstream-related activities such as plant turnaround, drilling rigs, well services, fixed structures, installations and maintenance, as well as hook-up and commissioning projects throughout this year.
At the same time, Wong said drilling activities have already displayed signs of acceleration since early this year.
This indicated that the offshore support vessel sub-segment is likely to see favourable outcomes in the near future, he added.
“In terms of sector valuation, the current trading levels are around 11 times to 12 times the forward price over earnings (PE).
“This is lower than the historical average sector PE, which typically sits in the mid-teens range, suggesting that there is still potential for upside from the current levels,” he estimated.
