RHB Investment Bank (RHB IB) maintained OVERWEIGHT for regional oil and gas sector as the recent escalation in geopolitical tensions should support oil prices in the near term.
“However, this premium may likely normalise more in the second half of 2024, assuming that said tensions are not ramped up further,” it said in its Regional Sector Update today (Feb 15).
The research house maintained its 2024 to 2026F Brent crude oil prices assumptions at USD85, USD80, and USD80 per barrel.
RHB IB said the overall global oil demand remains healthy with Organization of the Petroleum Exporting Countries (OPEC) projecting a positive growth of 2.2 million barrels per day (mbpd) for 2024 – led by China, India, the Middle East, and other Asian countries.
Non-Organisation for Economic Co-operation and Development (OECD) regions have the highest projections in demand growth, at 2 mbpd, for 2024.
Meanwhile, the US Energy Information Administration (EIA) and International Energy Agency (IEA) are also projecting another year of positive demand growth, up by 1.2 to 1.4 mbpd.
“Our economist expects global GDP growth to accelerate in 2024 with catalyst including interest rates normalising in 2H, inflation risks dissipating over the same period, and China’s potential economic recovery,” it added.
The research house said the disruptions due to the Red Sea crisis are affecting trade flows, leading to higher freight and insurance costs, as well as longer shipping routes.
“Europe is also importing more crude oil products from the US and West Africa, as trade flows from Asia and the Middle East to Europe are being disrupted.
“In the near term, we may see the prices of certain products surging. That said, in the longer term, we may continue to see Asia’s top oil importers diversifying import sources to ensure that the supply of feedstocks is uninterrupted.”
It said the market should be relatively balanced this year if OPEC+ extends voluntary production cuts until the year-end, assuming global oil demand grows by 1.2 to 1.4 mbpd as per IEA and EIA estimates.
“We believe OPEC still plays a major part in controlling the oil market. If the demand growth outpaces these agencies’ forecasts to be at 2.2 mbpd, as projected by OPEC, this would lead to a theoretical deficit in supply of 1.1 mbpd this year and OPEC+ will need to unwind production cuts to accommodate the market.
“The potential inventory drawdown also suggests oil prices should stay well above USD80 per barrel. Meanwhile, we are not overly concerned that Saudi Aramco is keeping its current maximum sustainable capacity at 12 mbpd in the near term.
“That said, we are unsure whether there is a change in its long-term oil demand view which has led to this, but it may affect oil capex spending in the long term,” it added.
Meanwhile, it said that the US crude oil production growth to moderate, as the EIA expects production to average at 12.9 mbpd, an increase of 9% or 1 mbpd in 2023, and at 13.1 mbpd, an increase of 1% or 0.2 mbpd in 2024.
“This implies a slight moderation from the latest data, before a surge to a new record high in February 2025. Major US shale producers are likely to prioritise capital discipline to reward shareholders this year versus of aggressively ramping up production.
The downside risks to RHB IB’s outlook are weaker oil prices and demand as well as a decrease in spending by clients.
The research house’s top picks for the region include Yinson Holdings Berhad (Yinson) and Dayang Enterprise Holdings Bhd (DEHB) in Malaysia; PTT Exploration and Production Plc (PTTE) in Thailand; and PT AKR Corporindo Tbk (AKR Corporindo) in Indonesia.
