Hong Leong Investment Bank (HLIB) has maintained its Overweight call on Malaysia’s oil and gas sector despite heightened geopolitical tensions in the Middle East, saying sustained investments in energy security and an anticipated Petronas capital expenditure upcycle will continue to support the industry’s long-term outlook.
In a research note, HLIB said Brent crude prices climbed back to around US$100 per barrel on July 23 after Houthi forces reportedly attacked two Saudi oil tankers in the Red Sea, expanding the conflict beyond the Strait of Hormuz into another critical global shipping route.
The latest escalation has reignited concerns over global energy supply after tanker traffic through the Strait of Hormuz declined again over the past week, reversing the recovery seen following the June memorandum of understanding between the United States and Iran.
According to the research house, the temporary easing in tensions between June 17 and July 13 had allowed more than 240 million barrels of crude oil and petroleum products to pass through the Strait of Hormuz, helping Brent crude retreat to an average of around US$75 per barrel during the period.
Red Sea emerging as key export route
HLIB noted that Saudi Arabia has increasingly redirected crude exports via its 7 million barrels-per-day East-West Pipeline to the Yanbu export terminal on the Red Sea to bypass disruptions in the Strait of Hormuz.
The Red Sea has become an increasingly important corridor, carrying between 12% and 15% of global maritime trade and roughly 30% of global container traffic.
However, fresh attacks in the Bab el-Mandeb Strait now threaten this alternative route.
The investment bank cited vessel tracking data showing traffic through the Bab el-Mandeb Strait fell by nearly 30% on July 21 compared with the previous day, highlighting rising risks to crude shipments destined for Asian markets.
It added that around 62% of crude loaded from Yanbu is now exported to Asian buyers, including India, China, Japan and South Korea, making the region particularly exposed to any prolonged disruption.
Brent could hit US$120 under worst-case scenario
While Brent has returned to the US$100 level, HLIB believes prices would need a far more severe escalation before surging to US$120 per barrel.
Among the key risks identified are a complete closure of the Strait of Hormuz, prolonged disruption at the Bab el-Mandeb Strait, attacks on the UAE’s Fujairah pipeline, Saudi Arabia’s East-West Pipeline or Yanbu export terminal, disruptions to Iraq’s export pipeline through Türkiye, and attacks on Oman’s export facilities.
Despite these risks, the research house maintained its Brent price forecasts of US$80 per barrel for 2026 and US$75 per barrel for 2027, albeit with an upside bias should geopolitical tensions worsen.
HLIB said several factors are likely to limit further price increases, including weaker Chinese crude imports, higher global oil production and rising output from OPEC+ members.
China’s crude imports have reportedly declined by more than 20% from 11.7 million barrels per day in February to below 9 million barrels per day by late May, easing demand pressures.
At the same time, global oil production rebounded in June, supported by increased output from OPEC members, Venezuela and the United Arab Emirates following the latter’s exit from OPEC in May.
Energy security theme favours Malaysian oil and gas
HLIB said Malaysia’s oil and gas sector remains well positioned to benefit from rising investments in energy infrastructure as governments seek to strengthen supply security amid persistent geopolitical uncertainty.
The research house expects stronger upstream earnings, improving order flows for oil and gas services and equipment (OGSE) companies, as well as sustained demand for storage terminals, pipelines and related infrastructure.
Dialog Group Bhd remains HLIB’s top sector pick with a Buy recommendation and target price of RM2.52, supported by its expanding midstream business and future storage capacity development at its Pengerang facilities.
HLIB also reiterated its Buy call on Petronas Chemicals Group Bhd (PCHEM) with a target price of RM5.56, noting early signs of stabilisation in petrochemical prices.
It said prices for high-density polyethylene (HDPE), urea, methanol and ammonia have remained resilient in recent weeks, while prolonged geopolitical disruptions could further tighten global petrochemical supplies and support higher product selling prices for the company.
