Research houses positive on oil and gas outlook

Kenanga Research said it is almost certain that the second half of the year will see improved results in comparison to the first half, helped by a mild rebound in crude oil prices post-April 2020 and easing of movement control order (MCO) lockdowns — Reuters pic
Kenanga Research said it is almost certain that the second half of the year will see improved results in comparison to the first half, helped by a mild rebound in crude oil prices post-April 2020 and easing of movement control order (MCO) lockdowns — Reuters pic

KUALA LUMPUR, Sept 7 — Research houses remain mostly positive on the local oil and gas (O&G) industry outlook despite the ongoing volatility of crude oil prices and poor financial second-quarter (Q2) results posted by several listed O&G companies as well as Petronas.

Moving forward, Kenanga Research said it is almost certain that the second half of the year will see improved results in comparison to the first half, helped by a mild rebound in crude oil prices post-April 2020 and easing of movement control order (MCO) lockdowns.

However, production and activity levels are still very unlikely to return to pre-pandemic levels at least for the next 12-18 months, it said in a statement today.

“As companies are now undergoing cost-saving measures in order to meet debt repayment obligations, we are also expecting more impairments, disposals, refinancing and merger and acquisition (M&A) activities within the sector moving forward,” it said.

Maintaining its “neutral” call on the sector, Kenanga Rsearch said it still does not think that pre-emptively buying into the sector to time a recovery is a viable investment strategy at this point in time, at least not on a broad-based approach.

Meanwhile, AmInvestment Bank has upgraded its call on the sector to “overweight” from “neutral” despite the ongoing volatility of crude oil prices as the down cycle may have reached a bottom with the worst experienced in April this year when Brent spot prices temporarily fell to a low of US$14/barrel (RM58.80) while futures inverted to an abnormal negative US$38/barrel due to a lack of storage capacity.

“Year-to-date (YTD), Brent crude oil prices have averaged US$42/barrel with spot prices at US$43/barrel currently from the year-low of US$14/barrel on April 22. This is supported by US crude oil inventories declining by 6.0 per cent to 508 million barrels currently from the all-time high of 541 million barrels in June this year.

“Hence, we maintain our crude oil price forecast at US$40 — US$45/barrel for 2020 and US$45 — US$50/barrel for 2021. For comparison, the Energy Information Administration’s Short-Term Outlook projects crude oil price at US$41/barrel for 2020 and US$50/barrel for 2021,” it said in a different note.

Maybank Investment Bank, on the other hand, has maintained its “positive” call on the sector, given that Petronas’ weak 2Q20 results were expected, and congruous with those of its global peers.

“Given the uncertain outlook, it may not meet its RM24 billion dividend commitment for 2020. There will be no retrenchment for Petronas staff but a salary cut will be implemented across the board,” it said. — Bernama

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