Adverse effects for local O&G should oil prices stay depressed

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KUCHING: An analyst believed there will be adverse impacts for Malaysian oil and gas companies should oil prices remain depressed going forward.

According to oil and gas analyst Aaron Tan from MIDF Amanah Investment Bank Bhd (MIDF Research), should oil prices remain at US$60 per barrel (bbl) for an extended period of time, revenue derived from the sale of hydrocarbons by companies such as Petroliam Nasional Bhd (Petronas) will definitely be affected negatively.

“Not only will Petronas suffer, most if not all national oil companies – international as well as independent oil companies – will suffer,” Tan told The Borneo Post via email yesterday.

As of the second quarter of 2014, Petronas’ revenue had increased by 15 per cent compared with the same period in 2013 mainly due to higher oil and gas production volume and higher liquefied natural gas (LNG) sales volume, coupled with the effect of favourable US dollar exhange rate movement against the ringgit.

The fear of oil prices plunging to US$60 per bbl is based on the notion that the Organisation of the Petroleum Exporting Countries (OPEC) will maintain its current output level subsequent to the meeting today.

“However, should this happen, we believe it will be a short-lived knee-jerk reaction as a significant amount of global oil supply has asset-breakeven levels above US$60 per bbl (more like US$75 per bbl),” he said.

In addition, Tan noted that more than half of the OPEC member countries have fiscal-breakeven levels above US$80 per bbl.

On the other hand, Business Monitor International (BMI) noted that OPEC production cuts will help manage, but not reverse a multi-year decline in oil prices.

BMI forecasted Brent to average US$91 per bbl, US$88 per bbl and US$87 per bbl in 2015, 2016 and 2017, respectively.

“Although lower oil prices will slow the boom in US unconventional oil production, the US will continue to reduce crude oil imports in the coming quarters.

“This will prevent OPEC cuts from shifting the global oil market back into persistent deficits,” it said.