Market analysts continue to favour upstream and midstream oil and gas players due to their relative stability, in the backdrop of fluctuating oil prices that may see non-OPEC+ countries increasing oil supply.
Kenanga Research has revised downward the average Brent crude oil forecast for 2024-2025 from USD80-84/barrel to USD77-81/barrel due to weaker global demand outlook, especially decline seen in China. Still, analysts expect crude demand to increase by 1.4m barrels/day in 2025.
The demand forecasts are viewed as conservative as analysts explore the supply side.
As reported, Organisation of the Petroleum Exporting Countries (OPEC) plus allied non-OPEC oil producing nations, forming the bloc of OPEC+, might defend oil price at current levels, even if it means extending production cuts into 2025. Market observers maintain the view that OPEC+ will not allow the Brent crude prices to trade below USD70/barrel, as this would negatively impact their national budgets.
Supply-wise, the production growth from non-OPEC+ countries, mainly the United States, Canada, Guyana, and Brazil is on the horizon.
To summarise, OPEC+ will continue to play a key role in balancing the crude oil market, while non-OPEC+ countries might ramp up production to take advantage of favourable crude oil prices.
Kenanga Research has maintained the OVERWEIGHT rating for the oil and gas sector as the current oil price levels are still supportive towards the local upstream investment, particularly given the under-investment by producers since the early 2020s. The midstream storage segment is benefitting from a structural increase in demand for storage in the region driven by geopolitical factors.
The upstream services market experienced a significant increase in activities in 2024 from Petronas and other oil producers, and this trend is expected to continue in 2025. The Pan-Malaysia umbrella contract worth up to RM10 billion with a duration up to 10 years could be up for grabs before the end of 2024 as Petronas and other oil producers look to award the next cycle of maintenance jobs which have been delayed for two years already, a booster shot for upstream maintenance activities and margins.
Analysts favour Dayang Enterprise Holdings Berhad (DAYANG) and set a target price of RM3.80 for the company. Dayang is expected to win the majority of the umbrella contract due to the company’s project execution track record and being a Sarawak-based contractor. As at 2pm on Wednesday, Dayang traded at RM2.22. (Stock updates from www.klsescreener.com)
Meanwhile, the short-term daily charter rate (DCR) for accommodation work boats (AWB) was quoted at RM150,000 for shorter-duration charters (three months or less), exceeding the levels seen during the previous bull market in 2013-2014. Mid-sized anchor handling tug supply (AHTS) vessels are seeing recent transacted DCRs of RM40,000 or below, still lower than their previous peak of RM47,000.
Other oil and gas sector top picks are Dialog Group Berhad (DIALOG) with a target price of RM3.18 and Wasco Berhad (WASCO) with a target price of RM1.70. As at 2pm on Wednesday, DIALOG traded at RM 2.13 and WASCO RM1.09. (Stock updates from www.klsescreener.com)
