KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) may reduce its domestic capital expenditure (capex) this year if oil prices drop further, analysts said.
Hong Leong Investment Bank Bhd said Petronas’ commitment to maintaining its domestic capex could be jeopardised by the Brent crude oil movement in tandem with US’ crude West Texas Intermediate (WTI).
Petronas previously said it would continue with its planned domestic capex of RM26 billion to RM28 billion this year, despite the recent downturn in the oil market.
However, the national oil company said it would reassess its plans and budget amid the challenging environment.
Today, Brent crude oil prices fell below US$16 a barrel for the first time in 20 years, as storage runs out in the face of a supply glut. At press time, the benchmark crude rebounded slightly to US$16.40 a barrel for the June contract. WTI, meanwhile, hovered at US$10 a barrel.
On Monday, WTI futures contracts for May fell into the negative territory for the first time in history at -US$37.63 a barrel fromUS$55.90 a barrel last Friday.
"We are monitoring the situation as pricesfor Brent has also started to parallel WTI’s movement in the market," HLIB said in a report today.
For now, the firm kept its oil price assumption of US$47 per barrel for 2020. This was on the premise of some recovery in demand in the second half of 2020 against the backdrop of production cuts.
HLIB also maintained its “neutral“ call on the oil and gas sector, while keeping its “buy” on MISC Bhd and Dialog Group Bhd with a target price of RM8.26 and RM3.87 respectively.
“MISC has resilient and defensive earnings profile with about 70 per cent of coming from long-term time charters and a dividend yield of 3.8 per cent.”
The firm said Dialog was the beneficiary of global oversupply of oil as its tank terminals should see an uptick in utilisation rates.
Meanwhile, Schroders head of commodities Mark Lacey said the biggest impact from the oil price crash and Covid-19 would be bankruptcies.
"Despite many oil companies cutting capital expenditure by up to 50 per cent, many, many companies are going to go bankrupt," Lacey said in a report.
He noted that around 80 oil and gas companies had filed for bankruptcy in the 2015 sell-off.
The current situation, Lacey said, was far worse than 2015.
The industry was going to look very different after this wash out, he added.
"These bankruptcies will not be limited to the US, but will also likely occur in Asia, Latin America and Europe.
"He said at current prices, many oil companies were starting to “shut-in” production. This is when they put a cap on production that’s lower than the potential available output.
“At the start of March the shut-ins were gradual but they are now accelerating and a lot of these will be permanent, with many fields potentially not restarting even if prices recover back to US$60-US$65 per barrel.
"Industry research suggests that as much as four million to seven million barrels a day could be permanently lost as a result of these shut-ins," he added.