CIMB Research sees upstream activities remaining competitive.
PETALING JAYA: Robust demand for domestic upstream activities and existing contracts are expected to drive earnings momentum for the oil and gas sector (O&G) in 2025.
Apart from this, CIMB Research also sees promising prospects for newbuilds in the floating production, storage and offloading (FPSO) and offshore support vessel (OSV) segments next year, supported by the tight market supply.
These catalysts, coupled with the sector’s attractive valuations at one standard deviation below 10-year average will drive a sector re-rating in 2025.
“We upgrade our sector call to ‘overweight’ (from ‘neutral’) following our recent rating upgrade for Petronas Chemicals Group Bhd
(PetChem) to ‘buy’.”
The research firm’s other top picks in the O&G sector are MISC Bhd and Dialog Group Bhd.
It noted that downward pressure on oil prices have eased. Brent oil price recently declined to US$69 per barrel driven by concerns over weak demand and a potential supply glut in 2025.
CIMB Research forecasts Brent prices to average US$70 per barrel in 2025, marking a 12.6% decline from the 11 months average of US$80.
“In our view, the lower prices reflect concerns over slower global economic growth. However, in the event of a demand-supply imbalance, we expect the Organisation of the Petroleum Exporting Countries and its allies (Opec+) to adjust output to stabilise prices.
“Notably, Opec+ controls over 40% of the world’s oil supply,” the research house said in a report.
US oil output is unlikely to experience massive growth despite presidential elect Donald Trump’s energy policy aimed at expanding oil and gas drilling on federal land and waters, CIMB Research said.
Substantial new investments are unlikely at the current West Texas Intermediate (WTI) prices of US$68.
Its views is based on the limited room for manoeuvring as rising operational costs could constrain margins, with break-even WTI prices for new wells in the Permian Basin estimated at US$62 to US$64 according to the Federal Reserve Bank.
It also foresees US oil producers maintaining capital discipline and prioritise returns over production growth amid growing shareholder pressure for consistent dividends.
As for Malaysia, CIMB Research sees upstream activities remaining competitive.
“The limited supply of OSVs presents opportunities for higher daily charter rates.
“This positive outlook is backed by PETRONAS’ RM300bil capital expenditure (capex) plan for 2023 to 2027 as announced in February 2023. Almost 80% is allocated to hydrocarbons to boost energy security.”
According to the research firm, as of the first half of 2024, the national oil company had utilised 26.2% of the total capex, equivalent to 87.2% of the RM90bil targeted for the period.
“Furthermore, our channel checks with domestic oil producers indicate that Malaysia’s break-even prices for existing and new wells range from US$30 to US$50 per barrel, suggesting that spending remains profitable at our 2025 oil price forecast of US$70.
“Key beneficiaries include Bumi Armada Bhd, MISC and Yinson Holdings Bhd for FPSO orders, while Dayang Enterprise Bhd stands to gain from robust maintenance activity and limited OSV availability.”
