KUALA LUMPUR: NON-Organisation of the Petroleum Exporting Countries (Opec) producers, including Malaysia, will stand to gain from the recent agreement by the cartel to cut production.
“Malaysia’s oil and gas (O&G) sector, including the supporting industries, will benefit from higher oil prices even with a lower production volume. The net impact depends on the relative volume or prices,” Sunway University Business School economics professor Dr Yeah Kim Leng told Business Times yesterday.
Malaysia and 10 other non-Opec producers agreed on Saturday to cut their oil output with the aim of ending the crude glut and reversing the fall in income, following the Opec agreement.
He added that Malaysia would benefit from the Opec move despite having to cut production.
“Let’s say Malaysia agrees to a five per cent production cut. But if the oil price is five per cent higher, its export earnings will remain the same or even slightly higher.
“If there is a loss in revenue, the long-term gain will come in the form of lower depletion rate,” said Yeah.
Public Investment Bank Bhd analyst Mabel Tan concurred with Yeah’s view.
“We believe oil prices will see some stabilisation at the current US$50 (RM220.76) per barrel level next year, supported by demand and supply fundamentals.
“At this stabilised level, capital expenditure spending should restart and, thus, spur activity for the sector,” said Tan in a research report.
Brent crude oil prices traded at more than US$55 per barrel yesterday, their highest since July last year, following the announcement of production cut by non-Opec members on Saturday.
The research house has an “overweight” recommendation on the oil and gas (O&G) sector with an unchanged estimation of US$50 per barrel.
“We concede that despite oil prices possibly remaining pressured, we are seeing the end of the lower oil price cycle as well, based on historical trend and a recovery ahead. Thus, we are revising our recommendation to ‘overweight’ on the O&G sector,” said Tan.
SapuraKencana Petroleum Bhd, Wah Seong Corporation Bhd and Bumi Armada Bhd are among the top picks for the research house.
On November 30, Opec members, which produce around 40 per cent of the world’s crude, announced their intention to cut output by 1.2 million barrels per day beginning January 1 to 32.5 million bpd.
Under that deal, Opec called on non-member producer countries to lower their output by 600,000 bpd.
The 11 countries that agreed to cut a total of 558,000 bpd are Russia, Kazakhstan, Mexico, Oman, Azerbaijan, Malaysia, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.