KUCHING: With global crude oil prices expected to remain volatile, analysts retained heir negative outlook on oil and gas’s (O&G) upstream segment while reiterating their positive outlook on downstream.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) decided to maintain their negative on look on upstream players due to the relatively volatile nature of crude oil prices for the second half of 2017 (2H17) as prices sustained above US$50 per barrel most of the time.
“Overall this was an improvement from the dismal average Brent crude oil prices of US$43.74 per barrel in 2016 and is mostly attributed to positive data on US inventory levels, strong macroeconomic data from the Americas and Europe, tapering in OPEC production levels and disruptive weather phenomenon,” it said in a note yesterday.
“Despite the increases in average crude oil prices, it has failed to make any meaningful upside recovery and coupled with the expectation that offshore assets will not fare well in the short-medium term.
“Due to the persistent struggle in global crude oil prices to make meaningful upside recovery, relatively slower upstream activities and charter rates stress on offshore heavy assets, we are maintaining our negative stance on the upstream oil and gas sub-segment,” reiterated MIDF Research.
On the flipside, the research arm is optimistic that the downstream segment will continue to fare well as they foresee continuous growth in the sub-segment arising from Petronas’ committed capital expenditure plan focusing on it.
To recap, Petronas has guided that much of their current capital expenditure budget has been diverted to the downstream sub-segment in the form of their Refinery and Petrochemical Integrated Development (Rapid) in the state of Johor.
With an estimated cost of US$27 billion, the project has been guided to have 300,000 barrels of refined oil capacity per day for its refinery component and an annual capacity of 7.7 million tonnes a year for its petrochemical component.
“We opine that the downstream utility and retail fuel segment will continue to register commendable year over year (y-o-y) earnings growth, offer above risk free rate dividend yields and acceptable capital upside.” Meanwhile on Wednesday, Petroliam Nasional Bhd (Petronas) has set the price factor for its Malaysian Crude Oil (MCO) for September at US$3.30 per barrel, the highest since April’s US$3.50 level.
The September price is US$0.35 per barrel higher than the August price factor.
Petronas changed its official selling price mechanism from January 2017, basing its benchmark price on a basket of four Malaysian crude grades: Labuan, Miri Light, Kikeh and Kimanis.
With that said, MIDF Research has decided to reaffirm their positive stance on the downstream sub-segment with a recommendation for investors to explore safe exposures in downstream players such as Gas Malaysia Bhd and Petronas Dagangan Bhd.
“In addition, we are recommending opportunistic buy into Petronas Chemicals Group premised on stronger demand, firmer product average selling prices and also better profit spreads,” added the research arm.