KUALA LUMPUR (March 21): Crude oil prices are projected to stay at elevated levels for a number of reasons including the geopolitical impact of Russia’s invasion of Ukraine which has triggered cascading sanctions, voluntary shunning of investments by international oil companies, substantive global supply chain disruptions and elevated risk premiums for commodities, according to AmInvestment Bank Bhd.
In a research note on Monday (March 21), AmInvestment said that apart from voluntary corporate sanctions on Russia, supply shortfall risks are escalating with major oil-exporting nations unable to ramp up production to pre-pandemic levels due to chronic under-investment over the past five years amid investors’ persistent energy transition-driven prerogatives.
AmInvestment has raised its Brent oil estimation by US$20 (RM84.09) per barrel to US$100-US$110 per barrel for 2022 and US$90-US$100 per barrel for 2023.
“We expect oil prices to soften next year on a stagflation outlook that could dampen global demand while spurring fresh investments in the sector and reignite production expectations.
“We expect selected segments in the value chain to be better positioned to benefit from higher oil prices and projects sanctioned by national oil companies.
“Operators directly exposed to upstream production such as Hibiscus Petroleum and the floating production storage and offloading (FPSO) sub-sector stand to benefit given the decimated number of operators during the previous downturn in 2015-2017,” it shared.
The research house has maintained its "overweight" rating on the sector on the back of escalating crude oil prices and anticipation that rising global demand will catalyse faster order flows across the value chain.
“We continue to like Hibiscus Petroleum’s direct upstream exposure to higher crude oil prices and Dialog Group’s expanding, yet resilient non-cyclical tank terminal and maintenance-based earnings base.
“Meanwhile, Petronas Gas offers highly compelling dividend yields from its optimal capital structure strategy and resilient earnings base,” it said.
The research house also highlighted that the volatility in crude oil prices following the Russia-Ukraine conflict has triggered divergent equity trends for the stocks under its coverage.
Equity prices of oil and gas stocks have not moved in tandem given the unexciting rollout of fabrication jobs by oil majors amid pandemic-inflicted logistics disruptions, it said.
“The rising sanctions against Russia have further catalysed elevated commodity prices and consequently, triggering stagflation worries that could dampen global oil demand.
“This was exacerbated by fresh Covid-19 lockdowns in several cities, especially Shenzhen, Shandong, Guangdong and Jilin, in China, prompting fears of another round of supply disruptions,” the research house said.