Maybank Investment Bank (Maybank IB) has maintained its Brent crude oil price forecast at US$100 per barrel for 2023, although it has not excluded the probability of it surpassing that level should the Organization of the Petroleum Exporting Countries and its allies (Opec+) choose to pursue a policy of higher prices over output.
“We are keeping our oil price forecast unchanged at US$100/bbl (dated Brent) for 2023, with upside bias,” said the research house in a note on Tuesday (April 4).
Maybank IB said oil prices could be sustained above US$100/bbl should the Opec+ alliance take a stand to seeing elevated oil prices over higher output.
“This would further tighten the global supply market, which is already being affected by the prolonged structural under-investment and rising demand outlook (China, aviation),” it said.
The planned production cut will undoubtedly tighten the global supply-demand balance, remove a short-term supply overhang, and raise the floor price to US$80/bbl.
“This move reiterates our view that the Opec+ alliance remains very much a relevant ‘swing oil producer’, is still disciplined and strong, as a collective force, in shaping the direction of the oil market (production and oil prices), and is gradually pivoting away from US influence/ direction,” it added.
Meanwhile, according to a Bloomberg report on Monday, Goldman Sachs raised its forecasts for Brent crude to US$95 from US$90 a barrel in 2023, and to US$100 from US$97 in 2024.
The report cited head of commodities research Jeff Currie, who said: “As we have argued, Opec+ has very significant pricing power relative to the past, and today’s (Sunday) surprise cut is consistent with its new doctrine to act pre-emptively, because it can, without significant losses in market share.”
He said unlike during the previous pre-emptive Opec+ cut in October, the momentum for global oil demand is positive, amid a strong recovery in China and resilient refining margins.
On a more conservative note, RHB Research increased its 2023 Brent crude oil price assumption to US$85/bbl from US$83/bbl, and maintained its 2024-2025 projections at US$80/bbl.
“We also project oil prices to average at US$87/bbl in the second half of 2023. Despite current oil demand still being projected to see positive growth of 2.3 mbpd, we do not discount the possibility of such numbers being trimmed in the coming quarters,” it said in a note on Monday.
RHB noted that, based on the Energy Information Administration’s disclosure, the US Strategic Petroleum Reserve (SPR) stock level was at 372 million barrels as of mid-March 2022 — still at its lowest mark since 1984.
“Such a low SPR level leaves US President Joe Biden with very few options to curb energy prices, as a further draining of the reserves could heighten national security risks, and make the US vulnerable to another major supply disruption,” it added.
Upstream players to benefit from high oil prices
Meanwhile, MIDF Research said higher oil prices bode well for the upstream in terms of exploration and production activities.
“In consideration that Malaysia has over 1,300 oil and gas services and equipment companies, we believe the upstream will be a major beneficiary of the increase in crude oil prices in the near term,” it added.
MIDF said downside risks still include a rapid increase in US oil production, a decrease in crude oil demand from China, and inflationary pressures from interest rate hikes.
Its top pick is Dialog Group Bhd (buy; target price: RM3.28), implying a price-earnings ratio of 30.6 times pegged at earnings per share of 10.7 sen estimated for the financial year ending June 30, 2023.
Meanwhile, Maybank IB said its key “buys” in the oil and gas industry are Dialog, Hibiscus Petroleum Bhd, Yinson Holdings Bhd, Icon Offshore Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, and Wah Seong Corp Bhd.
Nonetheless, higher oil prices will be a possible headwind for the midstream’s refineries and the downstream in relation to sales of refined products.
On Sunday, the Opec+ alliance announced a voluntary cut of 1.15 mbpd to stabilise the oil market.
Amongst the cartel, Saudi Arabia will take the largest cut with a quota of 500 kbpd, followed by Iraq (211 kbpd), the United Arab Emirates (144 bpd), and Kuwait (128 kbpd).
According to Reuters, the production cut will start in May, and last until the end of the year. As part of this alliance, Russia will also extend its production cut of 500 kbpd until end-2023. This action takes total production cuts announced since October 2022 to 3.66 mbpd.
Source: The Edge Markets