KUCHING: AmInvestment Bank Bhd (AmInvestment Bank) has maintained its 2018-2019 crude oil price forecasts at US$70 to US$75 per barrel, as revealed in its latest oil and gas sector report.
According to AmInvestment Bank, for 2019, the Energy Information Administration’s (EIA) is forecasting Brent at US$71 per barrel against a projected 11 per cent year on year (y-o-y) increase in US daily production to 11.9 million barrels.
“We maintain our 2018-2019 Brent crude oil projection at US$70 to US$75 per barrel versus the EIA Brent crude oil prices at US$72 per barrel and Petroliam Nasional Bhd’s (Petronas) unchanged US$52 per barrel for 2018,” the research firm said.
It noted that the Organization of the Petroleum Exporting Countries (OPEC) production quotas that were initiated in the beginning of last year have suppressed US oil inventories, which have fallen to 408 million barrels, down five per cent since the beginning of the year and 23 per cent from the 534 million peak in March 2017.
“Although US daily crude production has expanded by 12.5 per cent since the beginning of the year to 11 million barrels, this has been mitigated by declining Venezuelan output and potential resumption of US sanctions on Iran.”
Meanwhile, AmInvestment Bank highlighted that given the nation’s huge debt of RM1 trillion, one of the Pakatan government’s options to raise revenue may involve ramping up Petronas’ production against the backdrop of improving crude prices.
The research firm further highlighted that this will mean a substantive refocus in spending for exploration and production (E&P) activities notwithstanding Petronas’ lowered 2018 capital expenditure (capex) guidance to a flat RM40 to RM50 billion from a more optimistic target of RM55 billion earlier.
“Hence, we expect the asset utilisation rates for local service companies to gradually improve in the medium to longer term, even though charter rates could remain unexciting in the light of excess capacity globally.”
Going forward, the research firm also expected the rising momentum of fresh awards to gain traction, partly driven by Petronas’ downstream focus on Pengerang Integrated Complex (PIC) Johor, together with the resumption of massive offshore developments in Brazil and West Africa.
All in, AmInvestment Bank maintained its ‘overweight’ view on the sector given the stabilising crude oil prices above US$75 per barrel notwithstanding Petronas’ cautious capex strategy.
“As asset utilisation rates have begun to improve, we expect charter rates to have bottomed out even in the absence of any upward trajectory at this juncture.”