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PETALING JAYA: The appeal of local oil and gas (O&G) stocks remains intact, as global crude oil prices are expected to stay relatively stable through 2023, backed by healthy demand.
Price support is also seen coming from the United States through replenishing its Strategic Petroleum Reserve, as well as the Organisation of the Petroleum Exporting Countries through production cuts in the event of a downturn in global oil demand.
Overall, RHB Research remains “overweight” on the O&G sector. It listed Dayang Enterprise Holdings Bhd
, Malaysia Marine & Heavy Engineering Holdings Bhd and Yinson Holdings Bhd as its top sector picks.
The brokerage expects the international benchmark Brent crude oil price to average at US$83 (RM365) per barrel in 2023. This is lower than its earlier projection of US$88 (RM387) per barrel for this year.
The brokerage, nevertheless, maintained its 2024-2025 crude oil projection at US$80 (RM352) per barrel.
“As our oil prices are projected to average at US$83 (RM365) per barrel this year, we do not expect oil companies to scale back their capital expenditure (capex) and operating expenditure spending plans substantially (which will be a boon to upstream services players),” the brokerage said in its report yesterday.
“We are positive on Petroliam National Bhd’s guidance of a RM300bil capex for 2023-2027 (43% higher than the previous five-year period) to cater to the core business and energy transition agenda. There is more room for services players, in our view, to demand higher rates amid tight supply,” it added.
RHB Research noted the Bursa Malaysia Energy Index had retraced by more than 12% since hitting its year-to-date peak in early February due to weak oil prices, following a sharp rally in early January.
It said the recent retracement was deemed as an opportunity to collect on weakness.
RHB Research explained that its 2023 global crude oil price was revised lower to US$83 (RM365) per barrel from an earlier forecast of US$85 (RM374) per barrel.
This is as the oil market is projected to remain in a theoretical surplus of 0.6 million barrels per day (mbpd) in the second quarter (2Q23) before reversing into a deficit of 0.2 to 0.8 mbpd in the second half of the year (2H23).
“We lower our 2Q23 projection to US$80 (RM352) per barrel, as we believe it will take some time for overall sentiment to gradually recover – premised on the assumption that the banking crisis is very much well-contained,” it said.
“We also project oil prices to average at US$85 (RM374) per barrel in 2H23. Overall, oil demand should remain healthy this year, registering a positive growth of 2.3 mbpd,” it added.
Despite the continuous ban on Russian products, RHB Research said the crude market continued to see the re-routing of these products to other countries.
Citing Bloomberg, the brokerage pointed out that Russia’s crude oil exports by sea were still holding above three million barrels per day in the past six weeks. Most Russian exports were headed to China, India and other parts in Asia.
On the other hand, US production was still projected to deliver the strongest output growth (0.6 mbpd) in 2023. However, RHB Research expects such growth to moderate amid a reverse in the rig count uptrend.
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