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KUALA LUMPUR: AmInvestment Bank Research has upgraded the oil and gas sector to "overweight" despite the ongoing volatility in crude oil prices as the downcycle may have hit a bottom.

Following the recent quarterly earnings season, the research house has five "buy" calls in the sector and only two "sell" calls and one "hold", leading to the sector upgrade.

Two of the nine oil and gas companies under the research house's coverage beat expectations.

"Bumi Armada registered stronger-than-expected results mainly from a steady revenue contribution from the group’s floating production, storage and offloading vessel Armada Kraken which had been operating sub-optimally over the past two years.

"Sapura Energy also surprisingly outperformed with an unusual margin surge in its engineering and construction division together with higher asset utilisation," it said.

Meanwhile, the underperformers were Velesto Energy and Petronas Chemicals Group.

For 2020, AmInvestment maintained its oil price forecast at US$40 to US$45 a barrel. It also kept its oil price foercast for 2021 at US$45 to US$50 a barrel.

According to the research house, the low point for the crude oil market was when Brent spot prices temporarily fell to a low of US$14 a barrel in April while futures inverted to an abnormal negative US$38 a barrel due to a lack of storage capacity.

AmInvestment expects oil producers to proceed with their planned production cuts for this year given than demand globally remains depressed amid the prolonged Covid-19 movement restrictions and social distancing measures.

Petronas has already announced cuts of 21% for capital and 12% for operating expenditure this year.

So far, 20% to 30% capex reductions for 2020 have been announced by Exxon Mobil, Royal Dutch Shell, Saudi Aramco and Petrobras.

In 1H2020, new contract awards to Malaysian operators dropped 62% YoY to RM2.2bil, with the worst fallout yet to come in 2H2020 onwards, said AmInvestment.

The research house's "buy" calls are Petronas Gas, Dialogi Group, Serba Dinamik Holdings, Petronas Chemicals Group and Bumi Armada. Its "sell" calls are Sapura Energy and Velesto Energy while MISC is a "hold".

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