O&G counters to see some active buying activities ahead

KUALA LUMPUR: Malaysia’s oil and gas counters listed in the local bourse will likely see some active buying activities as oil prices weaken on the prospect of demand recovery, led by China’s loosening of Covid-19 curbs.

The bullish momentum, fueled by the United States intention to repurchase oil for its state reserves, prevailed against worldwide worries of a recession.

Rakuten Trade Sdn Bhd vice-president of Equity Research Thong Pak Leng said crude oil prices had weakened across the board on recessionary fears and a buildup in inventory as Brent crude dipped to US$79 per barrel.

Hence, the market may see some profit takings on the oil and gas stocks today following the rather good performance last week, he told Bernama.

Further on commodities, Malacca Securities Sdn Bhd said that while Brent crude oil is hovering above US$79, the crude palm oil (CPO) price is above RM3,900.

“We still like the oil and gas sector due to its solid earnings growth recently,” the firm noted.

Assistant professor at Asia School of Business Dr Renato Lima de Oliveira said a recession in the United States and Europe would dent the demand. However, China coming out of prolonged lockdowns may compensate for part of the demand loss from other markets.

The other factor influencing the demand is the substitutability of crude oil for renewables, such as electric vehicles (EVs).

As for oil supply, he said it responds to political agreements within the cartel of producers, OPEC (Organization of the Petroleum Exporting Countries), which is responsible for 40 per cent of the oil production in the world.

“Since 2020, the cartel has been quite effective in controlling supply and keeping the price of oil relatively high.

“Because investments in new oil fields have gone down, as the world embraces the energy transition agenda, it is unlikely we will have a supply glut coming from significant new volumes found outside OPEC, as it happened in the 1980s, with the North Sea and the Gulf of Mexico, and in the 2010s, with deep offshore production and the shale revolution.

“So, it seems likely that oil will trade between $60 to $100 in the short-run, with OPEC closing the spigots if we face a deeper recession next year,” he told the New Straits Times.

Juwai IQI chief economist Shan Saeed said oil prices are going through volatility in the market due to recession concerns.

He noted that oil prices are expected to come back as supply constraints would make investors jittery, thus causing prices to go north.

Higher oil prices would boost the economic outlook for many commodity-based countries like Malaysia, Canada, Brazil, GCC and the African region.

“We at Juwai IQI expect oil prices to meander around $83 to $127/barrel in 2023,” he said.

He added that oil prices are expected to hover between the range based on premises such as the depreciating dollar, the Ukraine-Russia conflict and supply constraints.

He also said the demand curve is stronger than the supplied stick, with daily demand hovering around 97 thousand barrels per day (mbpd) to 103 mbpd.

NST