Oil and gas sector
Maintain neutral: The key takeaway from the recently concluded 18th Asia Oil & Gas Conference (AOGC) is for a transition period for the O&G sector over the next 24 months as it adjusts to the low oil price environment. 

Oil price is finding a new equilibrium after the sharp fall. Overall, the tone reflects a restrained outlook. Capital discipline, cost controls, capital expenditure/operating expenditure cuts are some of the common themes consistently highlighted. 

The general consensus is that oil price will be volatile. The mid-term outlook is for a range of US$40 (RM148.40) to US$73 per barrel (bbl) over the next two years. 

It is worth highlighting that one speaker painted a scenario of potential weak oil price (to a low of US$20 per bbl) in June, shaped by certain key events, for example the probability of the Organisation of the Petroleum Exporting Countries (Opec) not cutting oil output post its meeting today and the United States lifting trade sanctions on Iran soon, further tilting demand-supply imbalances.

The market has underestimated shale oil, notably in the US. The revival has completely transformed the global oil market. As a result, Opec has abdicated its market manager role (relinquishing price support, and pushing for market share), which means a historic return to a fully free market for oil for the first time in over 80 years. 

Nonetheless, the US will not be able to replace Opec’s role as a swing producer. Instead, US shale will act as more of a price ceiling for oil than a floor due to higher production cost and production flexibility. — Maybank Research, June 4.

This article first appeared in The Edge Financial Daily, on June 5, 2015.