KUALA LUMPUR (April 17): Global oil fundamentals are not supporting Brent crude to rise further into the US$95-US$100 per barrel range, as Organisation of the Petroleum Exporting Countries Plus (Opec+) may increase production, given a significant amount of spare capacity to maintain the market share of the alliance of oil producing countries, according to AmInvestment Bank.

“Though we do not discount the possibility of Brent crude oil prices trading within the US$95-US$100 per barrel range, we believe this will largely be based on news and sentiments,” the investment bank said in a report on Wednesday.

AmInvestment also observed a muted reaction within oil markets, as participants view risks of sanctions on Iran as largely ineffective.

“Oil markets remained dull, as Brent crude oil prices remained largely unchanged at US$90.40/barrel at opening trade on Monday (April 15), or up 0.3% versus [the] prior day’s close,” it said.

The investment bank said this could be due to two factors — firstly, the run-up in Brent crude oil prices, which has risen by 17.3% year-to-date, following concerns over lower primary oil refining capacity levels in Russia, and the rollover of production cuts by Opec+ to the second quarter of this year (2Q2024), amounting to an estimated 1.7 million barrels (mbbl) per day.

Secondly, AmInvestment noted the ineffectiveness of sanctions on Iran, which continues to export oil primarily to China, through the use of alternative oil trade routes, “dark fleet” tankers and the recently-minted status of petroyuan.  

“Despite the various primary and secondary sanctions on Iranian-produced oil, the country’s crude exports remained strong, with March averaging 1.61 million bpd (barrels per day) — the highest since May 2023, when they were 1.68 million bpd,” it added.  

AmInvestment Bank also noted that despite experiencing slight easing, the shipping index remains at 10-year highs, reflecting expectations of elevated risks and higher sea freight costs. 

The research house said the freight shipping costs will stay high in the near term, even as they begin to taper off, amid many carriers struggling to maintain regular loads and planned timelines due to increased transit times. 

“The Shanghai Containerised Freight Index (SCFI), which represents spot rates for containers loading in Shanghai, has decreased by 22% to 10,757.04 points, from its peak of 2,240 points in mid-January. However, it experienced a minor increase of 11.6 points in the week ending April 12, 2024, compared to the week ending April 3, 2024,” AmInvestment said. 

Nonetheless, the research house maintains an “overweight” stance on the sector, while noting that companies that are exposed to the upstream oil sub-segment and the global shipping industry, namely, Hibiscus Petroleum Bhd, Dialog Group Bhd and Westports Holdings Bhd, may likely be affected by the escalation of geopolitical conflicts. 

Under a worst-case scenario, which anticipates a price of US$95/barrel and a delayed recovery until 1Q2025, Hibiscus Petroleum could see a 6% increase in earnings, AmInvestment said, adding that the group is fully exposed to the upstream sub-segment through its ownership of four production assets in Malaysia and the North Sea, UK. 

Notably, the Anasuria cluster, which had a relatively lower average selling price of US$81.96 per barrel compared to other assets, is expected to maintain strong selling prices, at least until 2QFY2025F.

In addition, Dialog, with partial exposure through the L53/48 field in Thailand and the D35, D21, and J4 production sharing contracts (PSC) in Malaysia, could experience a modest earnings increase of 1.2%, when adjusted for a US$95 per barrel environment.

As for Westports, the research house said the impact will likely remain muted on the group throughput growth, which translates to a slight earnings decline of 3%. 

At the time of writing, shares in Hibiscus were traded unchanged at RM2.70, valuing the company at RM2.17 billion. Dialog, on the other hand, was also unchanged at RM2.35, giving it a market capitalisation of RM13.26 billion.

Shares in Westports, meanwhile, traded one sen or 0.26% higher at RM3.88, valuing the company at RM13.2 billion.