KUALA LUMPUR (Nov 6): The oil and gas (O&G) players will benefit from the favourable operating environment, as the oil price is expected to stay high in the medium term, ranging from US$80 per barrel (/bbl) to US$90/bbl, says HLIB Research.  

In the note on Monday, the research house maintained its “overweight” stance on the oil and gas industry and revised its target Brent crude oil forecasts for 2023 at US$85/bbl for 2024, and US$80/bbl for 2025.

HLIB’s top picks for O&G players with “buy” recommendations are Bumi Armada Bhd (target price (TP): RM0.69), Hibiscus Petroleum Bhd (TP: RM3.22), and Wasco Bhd (TP: RM1.27). 

Among others, the research house pointed out the Organization of the Petroleum Exporting Countries (Opec)’s crude oil output has dropped by two million gallons per day (mbpd) from Oct 22 to July 23, reaching 27 mbpd, as it has reduced its production in several rounds.  

The research house believes that Opec+ will not increase its production soon despite having 5.0 mbpd of spare capacity, which could lower the prices, due to the weak economic outlook, high and persistent interest rates, and higher oil prices that may boost the O&G revenues for Saudi Arabia and Russia in the future. 

In view of the current geopolitical conflicts between Israel-Hamas, HLIB anticipates that the tension could increase the risk premium for oil.  

“Nonetheless, we do not foresee immediate supply risk from the region, so long as the conflict is contained to Israel and the Gaza Strip,” said HLIB.  

Commenting on the US crude oil production, the research house believes that the oil production growth in the country will soon hit its limit in the next few years, as the Permian Basin will start to decline.  

HLIB said this is mainly due to the productive areas which have been drilled, the oil majors having pledged to reduce their spending on fracking, and the shale oil wells having a high decline rate. 

Given the difference in projected oil demand for 2024 between Opec (2.44 mbpd year-on-year (y-o-y)) and the US Energy Information Administration (EIA) (1.32 mbpd y-o-y), HLIB said the possibility of China’s economy worsening may be the key downside risk to global oil demand.  

There has been slight fluctuation in the Bursa Malaysia Energy Index, which saw a decline of 0.12% to 874.44 points on Monday, a bit lower than its last close of 875.48 points on Friday (Nov 3).