MIDF Research maintains ‘neutral’ call on O&G upstream sub-segment

KUALA LUMPUR, June 20 ― MIDF Amanah Investment Bank Bhd Research (MIDF Research) has maintained its “neutral” call on the upstream sub-segment of the oil and gas industry and reiterated its “positive” call on the downstream sub-segment.

In the equity reports for the third quarter of 2019 (3Q 2019) outlook, the research house said the calls were due to the expectations of an increase of the capital expenditure (capex) in the offshore exploration and production (E&P), an increase in the levels of offshore activities as well as the sustained demand for petrochemical products globally.

“On average, approximately 30-40 per cent of E&P capex is allocated for drilling and completion, while around 15-20 per cent for subsea production.

“In its engagement with the market, Petronas has indicated that it plans to continue its capex spending in 2019 and the amount is expected to be similar of that in 2018, which is about RM55 billion, including to venture into new resource base and new business areas,” it said.

Following that, the research house said Petronas had also signed a contract with South Sudan’s government on exploration, production and sale of oil covering blocks one, two and four in an area once known as the Unity States.

On the crude oil demand, MIDF Research continued to believe that the emerging and developing Asia region would continue to be the main source of demand with an expected year-on-year growth of 6.3 per cent in 2019.

“In 2019, China’s crude oil demand alone is expected to account for 12.8 per cent of total global demand, up 2.4 per cent from 2018, and other Asian countries are also expected to stage strong crude oil demand growth of 4.5 per cent in 2019,” it said.

However, it anticipated that demand from developed nations in Europe to remain flat at approximately 14.26-14.30 million barrels per day.

As the overall demand is expected to continue being affected by the escalating trade tensions, MIDF Research had revised downward its Brent crude oil price assumption to US$70 (RM290.82) per barrel for 2019 from US$71.6 per barrel in 2018. ― Bernama

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