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PublicInvest Research maintains 'overweight' call on O&G sector

KUALA LUMPUR (July 6): PublicInvest Research has maintained its “overweight” call on the oil and gas sector on the expectation that oil prices could jump to US$80 per barrel, given the rising global oil demand and supply which bode well for oil prices.

Over the last 12 months, oil prices rose by over 70% — from around US$40 per barrel in mid-June 2020 to more than US$70 per barrel — due to optimism over the easing of Covid-19 restrictions for some of the world’s largest economies, it said.

The research firm opines that the muted response by the shale producers has also led to higher prices, coupled with the aggressive output cuts from the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), which led to faster drawdowns of global oil inventories.

Based on the current sector dynamics, it expects oil prices to average around US$70-US$75 per barrel for this year.

“Given this price, we believe it is attractive enough for the oil majors to increase spending in line with progressive global economic recovery and reduction in Covid-19 cases, hence, more significant work orders available in the market.

"This will be positive for the oil and gas service providers, although the Movement Control Order (MCO) 3.0 could probably pose some near-term challenges in terms of project execution," it said in a sector update note today.

The research firm also opined that the recovery in oil demand is on track, with full recovery expected to be in 2022, particularly when most long-haul flights that consume more fuel resumes.

It said the resumption of international travel and quarantine-free vacations abroad would be a big boost to jet fuel demand.

Nevertheless, a full recovery is highly dependent on how fast Covid-19 is being contained in Southeast Asia.

Meanwhile, on Petronas, PublicInvest Research said capital expenditure (capex) for the company will be significant from the second half (2H) onwards this year, with work orders available in the market.

However, it noted that MCO 3.0 will probably pose challenges to industry players in terms of project execution.

In the first quarter of 2021, Petronas’ capex spending was just RM6.7 billion or 16.8% of full-year capex target of RM40 billion, which also represented a 21.2% year-on-year decline due to project delays and re-phasing of activities resulting from the movement restrictions.


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