KUALA LUMPUR (Aug 14): Malaysia's oil and gas services and equipment (OGSE) sub-industry is expected to report an improved performance for the first half ended June 30, 2024 (1H2024), due to a higher Brent crude price during the second quarter (2Q2024), according to MIDF.
The house said its expectations are in line with 2Q2024 earnings results of oil and gas players in the US and Europe.
Halliburton reported a gain in 1H2024 by 4.3% year-on-year (y-o-y) to US$1.32 billion (RM5.84 billion), while Baker Hughes (NYSE:BKR) earnings added 5% y-o-y to US$1.03 billion, and Schlumberger (NYSE:SLB) earnings increased 10.8% y-o-y to US$2.18 billion.
MIDF noted that crude oil prices surged 5% y-o-y in 1H2024, with July's Brent crude averaging US$83.01 per barrel, a 4.6% increase from last year.
The gain was due to extended Organization of the Petroleum Exporting Countries and allies' (Opec+) production cuts until 3Q2024, escalation of the conflict in the Middle East, falling of global oil inventories, and increased summer demand, the research house said.
Conversely, natural gas prices fell sharply, dropping 13% y-o-y. The Henry Hub natural gas index averaged US$2.22 per MMBtu in July, a decline from US$2.54 per MMBtu in the previous year.
“The decline was due to higher inventory levels and decreased demand due to milder summer temperatures, on top of a relatively flat production,” the house said.
Despite the lower natural gas prices, MIDF noted that the KL Energy Index (KLEN) remained resilient, rising 14.9% y-o-y in July.
The strong performance of energy stocks in 1Q2024, coupled with higher oil prices and robust energy demand, buoyed the index.
“However, we expect geopolitical risks and US rate cuts to increase the volatility in the KLEN,” the research house added.
MIDF believes that although the Brent crude price had experienced a slight dip, falling 3% in late July from an average of US$84 per barrel to US$82 per barrel following China's weakest economic growth, it is expected to rebound.
"Nevertheless, the US Federal Reserve’s monetary policy may provide support to prices. Furthermore, geopolitical tensions in the Middle East and Eastern Europe continue to be a crucial contributor to the volatility of hydrocarbon prices and may even provide a boost," the house added.