Kenanga Research forecasts crude oil to average US$84 a barrel and US$79 a barrel in 2024 and 2025, respectively.
PETALING JAYA: Analysts remain overweight on the upstream segment of the oil and gas (O&G) sector, on the assumption energy prices will remain well supported by production caps and the incorporation of a risk premium due to geopolitical tensions.
Kenanga Research forecasts crude oil to average US$84 a barrel and US$79 a barrel in 2024 and 2025, respectively, on the assumption that Opec+ will discontinue production cuts by the end of this year and gradually ramp up production by a million barrels next year.
It added the high oil price levels are supportive of local upstream investments, anchored by national oil company, Petroliam Nasional Bhd’s (PETRONAS) RM60bil annual capital expenditure (capex) guidance.
This has led the research house to favour owners of offshore support vessels (OSVs) and jack-up rigs operators on expectations for favourable daily charter rates on the back of a supply crunch.
The research house also favours the midstream storage segment due to arbitrage opportunities arising from a contango in the oil market leading oil traders to structurally hold higher inventories as part of supply-chain risk management, amid heightened geo-political tensions.
Contango is a situation where the futures price of a commodity is higher than the spot price. Contango usually occurs when an asset’s price is expected to rise over time.
“First quarter (1Q24) domestic capex was RM5.5bil, representing 52% of total capex. Assuming the total capex reaches RM60bil, domestic capex will hit RM31.2bil in 2024, a 19% increase compared with 2023.
“This bodes well for local upstream service providers, particularly those that own offshore assets like jack-up rigs and OSVs,” the research house stated in a sector report.
In the South-East Asia region, it stated the utilisation rate of jack-up rigs was at 90% as of early June 2024, which ensures jack-up rig charter rates will remain on a bullish trend in 2024, with premium rigs expected to command rates of US$120,000-US$170,000 a day, while standard jack-up rigs are expected to command rates of US$80,000-US$115,000.
These rates will help rig operators like Velesto Energy Bhd
.
Hong Leong Investment Bank Research (HLIB Research) is also bullish about the prospects for the upstream segment after the monsoon season, when it expects local offshore activity will run at full throttle and lift topside maintenance contractors and OSV fleet owners in the coming quarters.
“In Malaysia, the award of maintenance, construction and modification and hookup commissioning packages and tenders for production operations vessels (POVs) are key rerating catalysts.
With oil prices staying above US$80 a barrel, we expect the drilling and floating, production, storage and offloading (FPSO) market to remain tight in view of rising exploration and production activity around the globe,” it stated in a sector report.
It added the awards of POV tenders, entailing three plus three years of long-term contracts for about 145 vessels (mostly anchor handling tugs), should occur by end-3Q24 with renewed rates.
“We believe the POV tender outcome will be the key rerating catalyst for the OSV sector going forward,” HLIB Research stated.
The maintenance, construction and modification and hookup commissioning work meanwhile will benefit contractors such as Dayang Enterprise Holdings Bhd, Carimin Petroleum Bhd and Petra Energy Bhd.
HLIB Research also noted 60 FPSO awards are expected from 2024-2028 from clients in South America (Brazil and Guyana) and Africa (Nigeria and Angola) alone, which will help contribute strongly to the tender pipeline of FPSO players like Yinson Holdings Bhd and MISC Bhd.
HLIB Research’s top picks for the sector are Dialog Group Bhd, Bumi Armada Bhd and Velesto.
The reseach house expects the downstream segment of the sector to face bearish headwinds as the supply glut remains a challenge for petrochemical players by squeezing margins and dragging on performance.
“Product prices and product spreads remain subdued. Moving forward, capacity additions loom large on the Asian polyethylene markets, posing challenges to market balance and oversupply,” said TA Research.
