KUALA LUMPUR: Public Investment Bank Bhd (PublicInvest) maintained a neutral call on the oil and gas sector, citing ongoing OPEC+ intervention through production cuts to support oil prices and market balance.
Brent crude oil prices have hovered between US$70 to US$90 per barrel throughout the year due to additional voluntary production cuts led by OPEC's de-facto leaders, Saudi Arabia and Russia.
PublicInvest asserts that Petroliam Nasional Bhd (Petronas) is unlikely to reduce its capital expenditure as long as Brent oil prices stay above US$60 per barrel.
Despite a decline in profit due to lower oil prices, the Petronas Activity Outlook (PAO) for 2024 indicates overall stability in activities.
"Assets from local oil and gas services equipment (OGSE) providers are expected to be fully utilised."Riding on this, OGSEs will continue to service clients by using well-maintained aged assets to maximise the value and charge higher unit rates due to the scarcity of the asset in the market.
PublicInvest says it favours Dayang Enterprise at a target price of RM2.25 and Uzma at a target price of RM1.20 as brownfield specialist OGSEs are expected to secure long-term key contracts next year by capitalising on capabilities and key assets in respective portfolios.
PublicInvest's recent note indicates that OPEC+ has extended the production cut until March 2024 due to ongoing challenges in oil prices, but it believes a price war is improbable, suggesting that producers may seek diplomatic solutions to uphold prices and maintain market share.
"On the demand side, the tug of war between interest rate and inflation is almost at an end with the expectation of soft landing without overall contraction in economic activity.
"The first half of 2024 (1H2024) oil demand is still expected to remain lacklustre with improvements in the second half of 2024 (2H2024) once monetary easing kicks-in," the bank said in a note today.
PublicInvest said the Brent oil price is expected to be traded at an average of US$80/bbl in 2024, slightly below the US$82 this year.
"On the floor price, Strategic Petroleum Reserve (SPR) is expected to build up its inventory and OPEC+ is likely ready to cut more of its production to prevent imbalances in the market."Any geopolitical tension would amplify oil prices volatility depending on the exposure of the demand supply oil market," it said.
The bank noted that despite anticipating a supply deficit in 2024, OPEC+ has opted for an additional voluntary cut of 2.2 million barrels per day (MMbbl/d) until March of the following year.
"We believe the cut is not impactful to the market due to the "voluntary" basis and insignificant volume reduction from the current production level.
"Although OPEC+ may make further cuts, a price war is unlikely, as diplomacy remains a favourable approach despite it losing the market share to the US with an all time high crude production level at 13.2MMbbl/d," it added.