Maybank IB positive on O&G sector

KUALA LUMPUR: Maybank Investment Bank Bhd (Maybank IB) remains positive on Malaysia’s oil and gas (O&G) sector, as the decision by the Organisation of Petroleum Exporting Countries (Opec) and Russia to lower overcompliance reflects the country’s prominence as a swing producer.

Maybank IB said Opec’s decision to lower over-compliance and adjust to 100 per cent compliance was better than the market’s initial expectations.

“It reflects a tighter control of additional crude oil supply entering into the market and the flexibility to adjust output while capping a floor price of US$70 (RM280),” it said in a note.

Though Opec and its allies agreed to increase production from next month onwards, there was no specification as to volume and timeline.

Maybank IB said Opec would seek to ease supply tightness by returning to a 100 per cent compliance with previously agreed output cuts of 1.8 million barrel per day (bpd) after months of over-compliance.

Although the collective decision was vague, the outcome was better than the market’s earlier expectation, it said.

“Consensus was anticipating a one million to 1.5 million bpd rise in output, on top of the earlier agreed compliance volume of 32.5 million bpd oil for Opec members, but the members have been collectively producing below that level since November last year due to unexpected supply disruptions in Venezuela, Iran, Libya and Nigeria,” it added.

As at last month, Opec’s output was at 31.9 million bpd, and based on a 100 per cent compliance rate of 32.5 million bpd, the total rise in output would be 600,000 bpd.

“The market reacted positively to the announcement and oil prices rose more than US$2/bbl to above US$75/bbl.