MIDF Research maintained a “positive” stance on the O&G sector.
PETALING JAYA: Oil and gas (O&G) companies are expected to perform well in the second quarter of 2024 (2Q24) as in the 1Q24 earnings season.
MIDF Research said this is in tandem with the higher Brent crude price in 2Q23 at US$85.03 per barrel, which was up 3.8% quarter-on-quarter.
“We believe the oil and gas service and equipment sub-industry will display improved performance with surprises expected in the tanker market.
“This is attributable to a growing capital expenditure for the global upstream division, overall, by about 24% increase year-on-year (y-o-y) to US$600bil in 2024, as upstream continued to ramp up in exploration and production activities, as well as the expectation that the elevated Brent crude price will continue to support the contractual nature of upstream operations,” the research house said in a report yesterday.
MIDF Research said geopolitical tensions in the Red Sea in the Middle East, as well as in the Russia-Ukraine borders continue to be major contributors to the volatility of hydrocarbon prices.
Moreover, the forthcoming elections in several countries, including Iran and the United States, added to the simmering geopolitical risks.
“This remains as the floor that kept Brent crude at a minimum of US$76 per barrel, while continuous Organisation of the Petroleum Exporting Countries and its allies (Opec+) supply cuts amid growing demand provided price support of about US$86 per barrel in June 2024.
“Opec+ had announced that it will extend its production cuts of 2.2 million barrels per day collectively until 3Q24 and then gradually phase, out until the end of 2025 starting from 4Q24,” the research house said.
MIDF Research said consequent to the higher crude hydrocarbon prices, Bursa Malaysia’s Energy Index had closed higher in June 2024, gaining 23.4% y-o-y.
“The index is starting to balance out with Brent crude oil spot prices in the beginning of 2023 as the Covid-19 pandemic impact had started to diminish and the effect of the Russia-Ukraine conflict had normalised, realigning the index trend to Brent crude oil once again.
“This would correlate the valuation of local O&G companies to the crude pricing, giving investors a better picture on the sector in the coming months,” the research house said.
On the other hand, natural gas saw a monthly and yearly surge on the back of increasing demand for liquefied natural gas, notably from Europe.
MIDF Research noted that the challenge remains in the competition with renewable energy as Japan and South Korea are shifting to nuclear, wind and solar.
“Nevertheless, natural gas is expected to see more uptake as a colder 2024 winter is forecast, consequently adding into higher demand amid lower supply,” the research house said.
MIDF Research maintained a “positive” stance on the sector with the top pick being MISC Bhd
(target price: RM9.75), given its well-established status as a maritime industry player for offshore services and diversified portfolio within the upstream and midstream businesses.
