RHB Research has maintained an “Overweight” on the Oil & Gas Sector with its top picks being Petronas Chemicals, Bumi Armada, Yinson, PTT Exploration and Production and Bangchak.
It said that the near-term oil prices should be supported by the continued tight supply in the market. However, we maintain a conservative outlook, with a relatively lower YoY projection in 2023-2024, due to the higher possibility of economic slowdowns in that period.
It said that it believes that upstream service providers (drillers, maintenance-related) should benefit from a ramp-up in activities and increased domestic capex allocations, coupled with better service rates ahead.
RHB said that exploration and production, selective refineries, and petrochemical companies should continue to enjoy strong earnings, while riding on stronger product prices.
“Downside risks to our sector call: Weaker-than-expected crude oil and product prices, lower capex spending, and a slowdown in global economic growth,” the stockbroking firm said.
RHB said that the increases its 2022F Brent crude oil price to USD108/bbl from USD104/bbl, while keeping 2023-2024 projections at USD85/bbl and USD75/bbl.
RHB expects oil prices to average at USD110/bbl in 3Q22 and moderate to USD105/bbl in 4Q22 as the higher adjustment reflects the continuously tight supply market in the near term, evidenced by low inventory levels and OPEC+ not meeting the production quota. At the recent 30th OPEC and non-OPEC Ministerial Meeting, OPEC+ reconfirmed its pledge to raise production by 0.648mbpd in August, as what had been agreed upon in the previous meeting.
Overall, it said that OPEC’s decision is likely to stay intact but supply should remain tight in 2H22 – as OPEC+ struggles to meet its production quota, casting doubt over the readiness of its spare capacity.
The stockbroking firm said that Nigeria’s output ramp-up plan could be offset by a gradual decline in Russia’s production. With that, the Organisation for Economic Cooperation and Development (OECD) stock levels is likely to hover at current levels in the near terms, which is not far off from 2010-2014 averages
