CRUDE oil – as in Brent crude – is indeed a ‘very alive and kicking’ commodity as evident in its price resurrection from the sub-US$30/barrel at the height of the COVID-19 pandemic last year to inching closer to the US$80/barrel level in recent times.
This has prompted RHB Research to toy with the idea of the Brent crude hitting US$100/barrel although the research house conceded that stronger catalysts – an upside demand surprise – are required to propel oil price to that level.
“This would further compress OPEC’s (Organization of the Petroleum Exporting Countries) spare capacity while the risk premium is likely to heighten when its spare capacity is lowered to 2 mbpd (million barrels per day) (vs an estimated 3.3 mbpd in 2022),” opined analyst Sean Lim in a regional oil & gas (O&G) update.
“Furthermore, OPEC’s current strategy, in our view, is still in its favour and price-positive. The easing of the fiscal breakeven price will bring more OPEC members closer to their biggest ally, Russia, keeping them intact as long as the US is not deemed as a competitive threat.”
Very broadly, RHB Research has increased its 2021-2022 Brent crude oil price projections to US$71/barrel and US$69.00/barrel respectively while maintaining its long-term crude oil price forecast at US$60/barrel.
“Near-term oil prices could be fuelled by optimism over an oil demand recovery as well as the commitment and willingness of OPEC+ to balance the market,” projected the research house. “The continuous inventory drawdown also suggests that the impact of the COVID-19 Delta variant could be milder than initially expected.”
Moving forward, RHB Research has retained its “overweight” outlook on both Malaysia’s and Thailand’s O&G sector.
It expects exploration & production and petrochemical companies to continue enjoying strong earnings recovery in 2021 – this may even spill over into 2022 – while they ride on improved commodity prices.
“Meanwhile, O&G service providers should gradually benefit from an increase in domestic capex allocations,” added the research house.
Its top picks among Malaysian O&G players are MISC Bhd (“buy”; target price: RM7.60), Petronas Chemicals Group Bhd (“buy”; target price: RM9.11) and Bumi Armada Bhd (“buy”; target price: 57 sen). – Sept 29, 2021
