‘OIL DEMAND MAY RISE IN H2’
But MIDF Research expects crude oversupply in Q4
CRUDE oil demand is likely to be stronger in the second half of this year, spurred by vaccine rollouts, according to MIDF Research.
Analyst Noor Athila Mohd Razali said some confidence had returned to the market with businesses and consumer spending expected to drive demand for crude oil and related products.
“Due to the global Covid-19 vaccination drive, coupled with the continued production cut, we expect crude oil to be in an undersupply position in the second quarter and potentially in the third quarter before reverting to an oversupply position in the fourth quarter of this year,” she said in a report yesterday.
Supply is expected to rise by 1.6 million barrels per day (mbpd) this year, higher than demand.
The International Energy Agency has projected demand to grow to 97.2 mbpd this year from 91.7 mbpd last year.
Noor Athila said the Organisation of the Petroleum Exporting Countries (Opec) had expected demand to grow by 5.8 mbpd this year, driven by the recovery in the transportation and petrochemical sectors.
“Following suit will be the demand for on-road diesel. Demand for industrial fuel, diesel and fuel oil is expected to return as well, albeit at a slower pace as it remains highly dependent on the recovery in economic activities this year.”
Although the overall demand remained highly dependent on the recovery of the aviation and transportation sectors, which made up 50 per cent of the total world crude consumption, she said the improvement in petrochemical demand was expected to help close the gap.
This follows the strong offtake from the healthcare sector and feedstock supply recently experienced by petrochemical producers.
“Coupled with improving product spread as a result of an increase in product prices, the better margin is also expected to drive demand for crude oil for the rest of the year.”
She said Opec and its allies’ decision to not raise output through May would provide a short-term boost.
The research firm expects oil price to normalise to US$60 to US$65 per barrel from June.
She said oil majors worldwide would continue to withhold their exploration and production (E&P) capital expenditure at least until the end of the first half.
On the local front, MIDF Research expects Petroliam Nasional Bhd to remain cautious in its spending for this year.
“This, in turn, would also potentially mean lesser international E&P spending and more localcentric activities to reduce volatility in its expenses as well as to support local oil and gas (O&G) service providers.”
She said oil majors would not be in a rush to start drilling again.
“Therefore, we reiterate our view that supply will overtake demand in the fourth quarter of this year.”
MIDF Research remains positive on both upstream and downstream sub-segments, backed by the sustained recovery trajectory in both demand and product prices.
“We also expect O&G players to register stronger earnings growth in financial year 2021,” it said.