KUALA LUMPUR (Sept 30): Malaysian oil-and-gas (O&G) stocks are poised for positive performance, bolstered largely by China’s robust import activity as it builds its strategic petroleum reserves, said CGS International.

The house reiterated its overweight rating on the sector, citing sustained strength in oil prices, which have remained resilient despite increased Opec+ production, as a key factor.

“Despite higher Opec+ production quotas, oil prices have remained supported at the high-60s US$/bbl ( per barrel) levels, because China has been the balancing factor absorbing the excess supplies by importing to top up its strategic oil reserves...,” it said in a note on Tuesday.

Further, the house said that the US Energy Information Administration’s (EIA) view that Brent prices may decline to as low as US$55/bbl in December 2025 and US$51/bbl in 2026, may not come to pass.

“This will provide positive sector support for the stock prices of companies that are exposed to the upstream space, like Hibiscus (Petroleum Bhd) (KL:HIBISCS) and Dialog Group Bhd (KL:DIALOG), as well as the stock prices of O&G services companies, as upstream capex (capital expenditure) by exploration and production companies may continue to flow."

The combination of higher Opec+ production and higher Chinese imports for storage has also been positive for crude-tanker freight rates, with VLCC day rates rising 24% and Suezmax rates rising 15% between 1H2025 and 3Q2025, although Aframax rates have remained flattish. 

“If the strength continues, we expect MISC Bhd’s (KL:MISC) petroleum tanker division to do better in 2H2025 and into 2026,” the house added.

The ultimate impact on global oil and shipping markets from the E3’s sanctions snapback depends entirely on whether China chooses to comply, said CGS.

Effective Sept 28, Britain, France, and Germany triggered this snapback, reinstating United Nations’ sanctions on Iran. 

Consequently, United Nations member states may now be required to enforce an arms embargo against Iran. 

The European Union and the United Kingdom are also expected to reimpose restrictions on Iran’s key economic sectors.

However, the decisive factor is China, which imports the vast majority of exported Iranian oil. 

CGS believes that China is likely to ignore the snapback sanctions for strategic reasons, as it has already questioned the legality of the E3’s move, suggesting a continuation of the status quo. 

Therefore, Chinese refineries will probably keep importing Iranian crude using the existing “dark fleet” of tankers, it added.