Hong Leong Investment Bank (HLIB) Research remains optimistic on Malaysia’s oil and gas sector despite lowering its 2026 Brent crude oil price forecast, citing improving geopolitical conditions in the Middle East, stronger energy security investments and an anticipated Petronas capital expenditure upcycle from 2027.
The research house maintained its “Overweight” rating on the sector, identifying Dialog Group Bhd as its top pick, while reaffirming positive prospects for upstream service providers and energy infrastructure companies.
HLIB said recent geopolitical developments indicate that tensions between the United States and Iran are moving towards de-escalation following the signing of a 14-point memorandum of understanding between both countries.
Although the ceasefire remains fragile, the agreement has helped restore confidence in global energy markets.
Data tracked by Bloomberg shows vessel traffic through the Strait of Hormuz has started recovering following the agreement, although actual shipping activity could be higher as some vessels continue to transit with their tracking systems switched off.
Against this backdrop, HLIB believes two long-term investment themes remain intact regardless of how geopolitical tensions evolve.
The first is rising investment in energy security, which is expected to support demand for pipeline operators, storage terminals and related midstream infrastructure.
The second is a potential increase in Petronas’ capital expenditure from 2027 onwards, which would benefit Malaysian oil and gas service providers through higher upstream development activities.
HLIB noted that offshore spending across the Asia-Pacific region has remained resilient despite recent geopolitical uncertainties.
Southeast Asia is expected to record a 12% increase in greenfield offshore capital expenditure, reflecting stronger investment in new production developments.
Brownfield spending is also projected to remain healthy as operators continue investing in existing assets to improve production reliability and strengthen energy supply security.
The research house highlighted the strategic importance of the Strait of Malacca, which now serves as the world’s busiest maritime oil transit chokepoint.
The waterway handled approximately 23.2 million barrels of crude oil per day during the first half of 2025, accounting for nearly 29% of global seaborne oil flows.
China represented almost half of the import volumes passing through the strait, while significant crude exports and imports involving the United States also relied on the route.
HLIB said recent geopolitical disruptions have reinforced the importance of the Strait of Malacca as a critical energy and trade corridor for Asia.
This is expected to drive greater interest in Malaysia’s Pengerang petroleum hub.
Dialog’s independent tank terminal facilities continue operating at utilisation rates exceeding 90%, supported by sustained demand for storage, product redistribution and higher tank turnover.
The research house also sees medium-term growth opportunities through Dialog’s planned expansion in Pengerang, where the company owns approximately 660 acres of buffer land capable of accommodating an additional four to five million cubic metres of storage capacity.
Looking ahead, HLIB expects Petronas’ capital expenditure cycle to strengthen from 2027, creating fresh opportunities for domestic oil and gas engineering and services companies.
The anticipated increase in spending is expected to support higher demand for upstream development, hook-up and commissioning works, maintenance services, marine support, fabrication and pipeline-related projects.
Among upstream contractors, HLIB expects Dayang Enterprise Holdings Bhd to benefit from stronger maintenance, construction and modification activities, while Velesto Energy Bhd stands to gain from improved utilisation of its jack-up drilling rigs.
Offshore support vessel operators, including Keyfield International Bhd and Perdana Petroleum Bhd, could also benefit from rising vessel demand and firmer charter rates as offshore activities accelerate.
Despite maintaining a positive outlook for the sector, HLIB revised its average Brent crude oil price forecast for 2026 to US$80 per barrel, down from US$90 previously, while leaving its 2027 forecast unchanged at US$75 per barrel.
The revision reflects expectations that oil prices will gradually moderate as geopolitical tensions ease.
Nevertheless, HLIB believes prices are likely to remain above US$75 per barrel into early 2027 as global oil inventories remain below historical levels and energy security concerns continue encouraging higher strategic stockpiling.
The research house also noted that production recovery in the Strait of Hormuz region could take longer than expected, with shut-in production volumes increasing from 35% in March to 45% in May 2026.
HLIB maintained its BUY recommendation on Dialog Group Bhd with a target price of RM2.52, describing the company as the primary beneficiary of growing energy security investments and expanding midstream infrastructure demand.
The research house also retained its BUY call on Hibiscus Petroleum Bhd, although it lowered its target price to RM2.59 from RM2.74 after trimming its FY2026 earnings forecast by 10% to reflect the lower oil price assumption.
Overall, HLIB expects stronger upstream earnings, improving order flows for oil and gas service providers, and sustained investment in storage, pipelines and broader energy infrastructure to continue supporting Malaysia’s oil and gas sector over the medium term.
