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No sign of O&G supercycle as yet

There is no clear sign of an oil and gas (O&G) supercycle on Bursa Malaysia soon despite some world traders saying Brent crude price could hit US$100 per barrel.

O&G counters closed 11.04 per cent lower or 1.35 per cent to settle at 897.83 points on Friday, despite sustained Brent crude oil prices, which hover around US$75 per barrel.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said prices were only anticipated to be driven higher by the economic recovery later.

He said expectations of Brent crude oil price reaching US$100 per barrel seemed far-fetched considering that the Organisation of Petroleum Exporting Countries (OPEC) was discussing to ease production cuts further in the coming months.

“Abroad, we see the resumption of flights amid relaxation of border restrictions in parts of the United States will increase fuel consumption by the aviation industry.

“Aside from that, domestically, Petroliam Nasional Bhd (Petronas) would be more inclined to direct more capital expenditure (capex) to the upstream division to partially counter a natural decline in O&G production caused by the limited scale of investment undertaken since 2015,” he told the New Straits Times.

AmInvestment Bank Research, in a recent report, maintained its “Overweight” rating on the O&G sector for the next 12 months.

This as crude oil prices have risen by 74 per cent to US$75 per barrel currently from an average of US$43 per barrel in 2020, due to global resurgence in capex roll-outs and structural rerating prospects of independent exploration and production (E&P) producers and service providers.

According to a Bloomberg report, OPEC+ would discuss on whether to boost production further at next week’s meeting as the oil market looked increasingly tight.

The OPEC and its allies were already in the process of reviving about two million barrels a day of idle production from May to July, but influential voices in the market were asking for more as prices rise, the report said.

The International Energy Agency has urged OPEC+ to start tapping its spare production capacity to bolster supply as demand rebounds.

Goldman Sachs Group Inc estimates the market is running a deficit of three million barrels a day, citing a lack of meaningful output growth.

In addition, OPEC+ is still withholding as much as 5.8 million barrels a day from the market, Bloomberg report said.

In identifying companies that direct exposure to higher crude oil prices in the local bourse, AmInvestment sees positive on Hibiscus Petroleum Bhd, a pure exploration and production (E&P) operator with concessions in Malaysia, Vietnam and the United Kingdom.

Others include Dialog Group Bhd for its “resilient non-cyclical” tank terminal and maintenance-based operations and Yinson Holdings Bhdfor its strong earnings growth momentum from the full-year contributions of floating production storage and offloading vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.

Sapura Energy Bhd is also on the radar as the company just completed its RM10 billion debt restructuring package.

This positions the engineering, procurement, construction, installation and commission group to secure fresh global orders.
Source: New Straits Times

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