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Oil demand to stay healthy this year

Although some analysts have marginally lowered their 2023 price forecast for Brent crude oil, they believe that global crude oil demand will remain healthy for the year.

“We lowered our 2023 Brent crude oil price forecast to US$88 (RM385) per barrel from US$90 (RM394) and maintained our 2024 to 2025 projections at US$80 (RM350),” said analysts at RHB Research.

In a report to regional clients, they said it would take some time before the impact of China’s border reopening is felt in the oil market.

“Overall global crude oil demand should remain healthy, registering growth of 2.2 million barrels per day this year.”

RHB Research warned that apart from global economic uncertainties, there is also an increased risk of a supply disruption following the commencement of the European Union (EU) embargo on Russian oil and the implementation of a price cap.

“For now, we may see a sudden decline in crude exports, but these should eventually be re-routed to other countries as time goes by – premised on the overall global demand being largely unaffected.”

According to the research house, oil companies will maintain capital and operating expenditure spending plans, which will benefit upstream service providers like Yinson Holdings Bhd, Dayang Enteprise Bhd and Coastal Contracts Bhd.

For Malaysia, the overall expectation of upstream activities by services players remain fairly robust.

“Also, there could be a potential increase in rates for new contracts, to cater to the rising cost of materials.

“For Thailand, we like PTTOR plc and Bangchak Corp – both top picks – on the basis of their oil and retail business recovery, which in turn would be supported by their nationwide oil and retail service branches in Thailand and neighbouring countries,” the research house said.

The RHB Research report noted that crude prices averaged at US$89 (RM389) in the fourth quarter of 2022, falling below its expectations, largely due to increased negative sentiment resulting from multiple factors such as higher recession risks amid weaker consumption in China.

“We lower our first quarter 2023 projection as we believe it will take some time before the impact of China’s reopening of borders can be felt – although this should garner momentum in second to third quarter.”

Citing data from the US Energy Information Administration, RHB Research said there are expectations for US crude production to improve in 2023.

“Although this would make the United States the producer that delivers the strongest output growth this year, such forecasts have been adjusted downwards since the beginning of the year.

“This is despite the strong rig count numbers. The US rig count is still on an uptrend, albeit, at a decelerating pace – it stood at 784 in early December, up by about 38% from a year ago, but still pointed to a gap from the 900 to 1,000 levels recorded in 2018 and 2019,” it noted.
Source: The Star

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