Research firm keeps ‘overweight’ call on oil & gas sector

PETALING JAYA: PublicInvest Research has maintained its “overweight” recommendation on the oil and gas (O&G) sector, premised on the stabilisation of prices at higher levels, thereby encouraging a return in activity.

“Oil prices are expected to stabilise, with our estimates premised on the average year to date oil price at US$52.40 per barrel for Brent and its futures for 2H17 at US$49 per bbl to balance the year at our estimated US$50 per bbl price for Brent in 2017,” its analyst Mabel Tan said in a note yesterday.

For 2018, PublicInvest estimated the Brent oil price levels to average at US$55 per bbl.

Tan said the research house believes the industry is more focused on robust activity at stable oil prices, rather than very high oil prices at this juncture, which may not be sustainable.

Overnight Brent crude prices hit their highest levels since July 2015, closing at US$58.44 per bbl on concerns over potential supply issues as Turkey threatened to turn off a pipeline through northern Iraq and also the build-up on previous worries of US refineries having been hit by the hurricane season.

She said this has put Brent crude prices within sight of the US$60 per bbl mark and thus reinforcing the research house “overweight” view on the sector.

Furthermore, Tan said, oil prices continued to firm up this week, holding onto gains, despite no decision on the extension of curbing oil production beyond the current deal which expires in March 2018.

From the meeting in Vienna last Friday, she said the Organisation of Petroleum Exporting Countries (Opec) and other oil producers may extend cuts in the next formal Opec meeting in November, but would most likely wait until January.

Opec together with Russia and several other producers have cut 1.8 million barrels per day since the start of 2017, which has seen to lift oil prices some 15% during the past three months.

Meanwhile, the Energy Information Administration report projected total world energy consumption will rise 28% between 2015 and 2040, with most growth coming from developing countries.

It also reported another significant drawdown on petrol stocks, partly due to the lingering refinery outages in Texas from the hurricane season, but also because demand is proving to be robust.

“This means crude drawdowns can also be expected as refineries around the world need to pick up the pace,” Tan said.