Despite headwinds, analysts sanguine on O&G outlook in 2024
Despite ongoing geopolitical headwinds and uncertainties in global demand, analysts are still optimistic on the recovery of the oil and gas (O&G) sector in 2024.
In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) said Petronas may see headwinds, considering that the oil and gas sector faced a fragility in the end of FY23, following the geopolitical tensions and the lower Brent crude and Henry Hub natural gas prices.
This had instilled caution in spending and investing for crude petroleum and petroleum products, as well as downstream services.
Additionally, it said, the uncertainties remained on slower global demand on top of supply risks, following the increased geopolitical tensions in the Middle East, Europe and potentially East Asia.
“However, we believe that, pending a drastic change in the current Brent crude oil price (currently hovering between US$80 to US$85 per barrel), the oil and gas sector would see a recovery in late 2H24, on the increase in demand for petroleum products, notably petrochemicals,” it commented.
Meanwhile, Kenanga Investment Bank Bhd’s research team (Kenanga Research) said it expected Brent crude prices to average US$84 per barrel in 2024, a level that should enable Petronas to increase its upstream spending significantly to counteract potential long-term declines in natural production.
“Furthermore, we anticipate that local capex will surpass RM26 billion in 2024, driven by accelerated project development across all Malaysian regions.
“This outlook aligns with our prediction of a sustained upcycle in upstream services activities,” it said.
The research team also pointed out that drilling activities have already shown signs of acceleration since early 2024, and we foresee the offshore support vessel (OSV) subsegment reaping benefits in the near future.
“Additionally, brownfield well services have been increasing, and this trend is expected to continue into 2024, especially with a rise in plug and abandonment jobs for wells in Malaysia, supporting sustained momentum in the sector,” it added.
The research team also pointed out that with the group’s cash flows from operations expected to remain above RM100 billion in 2024, after achieving RM135 billion to RM114 billion during 2022 to 2023, Petronas is wellequipped to meet its RM60 billion capex goal in 2024 without materially affecting its financial health.
“In essence, we continue to be positive on upstream service providers due to the expected uptick in upstream capex in 2024.
“Nevertheless, we are less excited about the downstream sector outlook amid uncertainties in global demand coupled with an anticipated increase in global capacities,” Kenanga Research said.