PETALING JAYA: The current standoff between the US and Iran, if it remains, will lead to a more sustainable oil price movement and a more stable outlook for the oil and gas industry, according to MIDF Research.
The research house said some 20% of the world’s oil supply originates from the Middle East. Therefore, any tensions surrounding the region and Strait of Hormuz will disrupt world trade and oil supply.
Members of the Organisation of Petroleum Exporting Countries (Opec) in recent interviews with various news agencies stated that they are vulnerable to regional conflicts and unable to cope should there be an attack by Iran on their oil facilities. As recent experience has shown; the drone attack on two of Saudi Arabia’s oil facilities effectively wiped out half of the kingdom’s oil production.
“Due to this, we reiterate our view that the situation is unlikely to escalate further at this juncture and we expect oil price to trade between the US$60-65 per barrel range and to average at US$65 per barrel in 2020,“ said MIDF.
However, MIDF cautioned that a further escalation of the US-Iran crisis will potentially result in attack on US-related assets and oil-related assets. This, in return could lead to a temporary disruption in oil supply and rise in oil price.
“We believe there will be a temporary knee-jerk reaction towards the oil price – should there be an escalation of attack.”
While in general a higher crude oil price is favourable to encourage the continued spending of oil and gas exploration and production (E&P) producers, MIDF opined that a stable and sustainable oil price will be even more favourable to the oil and gas companies in the current operating climate. It is to enable a proper planning for future capital expenditure to be conducted using predictable parameters rather than projecting numbers in an extreme environment.
Looking at the current operating climate, MIDF reiterated its view that local oil and gas services companies that are involved in drilling, fabrication and vessel providers (FPSO and OSVs) will continue to benefit from the upbeat offshore activities going into 2020.
For the upstream services segment, it remains bullish on Dayang Enterprise Bhd as the company can expect to benefit from its synergy with Perdana Petroleum Bhd in providing vessels to exploration & production players and more active offshore maintenance works. It also likes Bumi Armada Bhd due to its improving operational conditions as well as its position as the largest FPSO provider in Malaysia. It is also favourable towards Dialog Group Bhd specifically due to its stable recurring income from its tank farm business and due to it being one of the main beneficiaries of the soon-to-be operational Pengerang Integrated Complex.
For the downstream subsector of the O&G industry, it remains positive on Petronas Chemicals Group Bhd, Petronas Dagangan Bhd and Gas Malaysia Bhd as despite industry-specific challenges. It opines that demand for downstream products remains robust and that the external disruptions are temporary in nature which will not halt the respective companies’ growth going forward.
