KUALA LUMPUR (April 22): Ongoing uncertainties from the Middle East tensions are expected to bolster oil prices, and investors should continue to buy into the oil and gas (O&G) sector, analysts said.

Oil prices may hit as high as US$140 (RM669.62) per barrel if the Israel-Iran conflict intensifies, harking back to the onset of the Russia-Ukraine conflict, RHB Investment Bank said. For now though, oil prices will likely average US$88 this year versus US$82 in 2023, according to the research house’s estimates.

“Prices could stay elevated for longer, depending on the magnitude of the event,” it said. At this stage, the disruption to the oil market is “rather manageable”, assuming there is no further escalation between these two countries, RHB noted.

Brent, the global benchmark for crude oil, was trading at US$85-US$92 per barrel as Israel and Iran traded drones and missile attacks. The conflict comes on the heels of the Israel-Hamas conflict in Palestine, as well as strikes by Houthi militants against Israel that sparked the so-called Red Sea crisis.

Shares in Malaysian O&G firms have outperformed the broader market. The Bursa Malaysia Energy Index, which tracks 22 O&G companies, has gained 19% so far this year. The country's benchmark index FBM KLCI, meanwhile, is up a little over 7% year-to-date.

Among the top 20 listed O&G companies observed by The Edge, Uzma Bhd recorded a surge of over 70% since the beginning of the year, followed by Perdana Petroleum Bhd at 67%, and Dayang Enterprise Holdings Bhd at 59%. 

The US, meanwhile, have also re-imposed sanctions on Venezuelan oil, though the move is expected to have a minimal impact on the oil market as the country’s oil production was only 0.8 million barrels per day in the first quarter of 2024, RHB noted.

For strategy, RHB highlighted that companies focusing on exploration and production, such as Dialog and Hibiscus Petroleum, would gain from the rising oil prices. The research house also continues to like upstream services firms, which are set to benefit from robust activities and steady charter rates.

While oil prices at US$84 per barrel for 2024 are also supportive of upstream investment locally, given the under-investment in the early 2020s, Kenanga Investment Bank flagged that investors should also look at the midstream segment, particularly tank terminals.

The market indicates “signs of bottoming out” while the surge in projects related to low-carbon storage offers growth opportunities for tank terminal operators, said Kenanga, which has an ‘overweight’ sector call.  

Global storage market has experienced resurgence in utilisation and storage day rates in 2023, with Dialog indicating a daily storage rate per cubic meter of S$6.50 (RM22.85) versus 2022’s low of S$5.50, the research house noted.

Kenanga’s top picks for the sector are Dialog, Yinson Holdings Bhd, Icon Offshore Bhd, and Keyfield International Bhd, which was listed on Monday.