1 week ago
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PETALING JAYA: Recent positive developments on Covid-19 vaccines give hope for a better outlook for the oil & gas sector (O&G), suggesting that the worst is most likely over, according to PublicInvest Research (PIVB Research),
In the year ahead, the research house expects oil prices to average US$45-50 (RM183-203) per barrel .
“Though we also see it touching between US$55 and US$60 per barrel particularly towards 2H’21, subsequent to the progressive recovery in demand, supply controlled by Opec+ members as well as positive development of Covid-19 vaccines, boosting market sentiment as a whole,” it said in a report.
On the vaccine front, PIVB Research said: “With the vaccine more readily available for usage, albeit gradually given limited production capacities, global economies will slowly return to normal as travel restrictions will be lifted.”
In turn, this will help prop up prices again and increase demand for energy and simultaneously lift hopes for a travel industry recovery next year as sentiment improves, thereby increasing jet fuel consumption.
Furthermore, the recent Opec+ (Organization of the Petroleum Exporting Countries and its allies) meeting had agreed on an increase of 500,000 barrels per day (bpd) in production. This will bring total production curbs at the start of 2021 to 7.2 million bpd.
The research house said although the decision missed market expectations of a further extension of the 7.7 million bpd through to March at least, it is still deeper than earlier numbers agreed upon in the first meeting in April this year of a 6 million bpd cut through to April 2022.
It calculated that the increase of 500,000 bpd translates to less than 1% of the global oil market and is tolerable amid a gradual recovery in consumption as lockdown measures are eased and travel begins to pick up.
“With Opec+ controlling about 50% of the global production coupled with strong compliance by the group, we foresee oil prices to be well supported within the current levels,” it said.
Moving forward, the PIVB Research noted that demand has started to pick up in major Asian economies like China and India.
Given that two-thirds of oil consumption is accounted for by the transport sector, in particular jet fuel, the collapse in air travel will weigh on the sector. It noted that demand remains at around 50% of 2019 levels as international flights remain grounded.
On the local front, PIVB Research said Petroliam Nasional Bhd (Petronas) has revealed a 22% higher quarter-on-quarter capital expenditure (capex) to RM7.7 billion following the 25.6% q-o-q slippage in the second quarter of RM6.3 billion.
In total, its nine-months 2020 (9M’20) capex stood at RM22.5 billion though it is still down from RM28.9 billion reported for 9M’19. This accounts for 60% of the revised capex plan for the year of RM37.8 billion.
Of the total capex spent by the national oil company thus far, 53% has gone to local players with activities mostly in the upstream segment.
“We expect 4Q’20 spending to be around 1Q (~RM8+ billion) or even higher, though total spending in 2020 will likely fall short below the revised value,” said PIVB Research.
Furthermore, it does not see the industry experiencing negative surprises in sector-related activity.
While PIVB Research acknowledged that there could be some lagged effects from capex reductions, impacts will be less significant compared with the previous two quarters.
In regard to the local counters, the research house stated that there were no major surprises in the recent quarterly earnings result cycle, with all in line with its expectations.
Earnings turnarounds were seen for most companies under its coverage – Dayang Enterprise Holdings, Hibiscus Petroleum, Uzma Group and Wah Seong Corporation – after facing major disruptions in operations during the global lockdowns and movement restrictions.
Moving forward, PIVB Research sees earnings stability owing to further pickups in sector activity.
“With gradual recovery in demand on the back of higher inventory drawdowns as lockdowns ease, coupled with the limits put on oil production, we expect to see oil prices remaining stable at current levels.”
With that PIVB Research is now overweight on the sector.
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