KUALA LUMPUR (Jan 9): Hong Leong Investment Bank (HLIB) Research expects Malaysia’s oil and gas (O&G) sector to remain supported by resilient earnings among selected downstream and offshore production players in 2026, despite an expected global supply glut driving oil price lower.

The bank said it has lowered its Brent crude oil price assumption to US$65 per barrel for 2026, citing a structurally oversupplied global oil market, with the US Energy Information Administration projecting a surplus of about 2.3 million barrels per day, which could continue to weigh on crude prices. 

However, it noted that China’s aggressive crude stockpiling, underpinned by the Energy Law enacted in January 2025, may help absorb excess supply and cushion downside risks.

HLIB expects floating production storage and offloading (FPSO) activity to re-accelerate in 2026 following a moderation in awards last year, supported by improving tender visibility and the structural attractiveness of offshore developments.

In Malaysia, Petroliam Nasional Bhd (PETRONAS) has indicated that four FPSOs and one floating storage unit are slated for award between 2025 and 2027, with the Kikeh deepwater project emerging as a key catalyst.

Meanwhile, the bank cautioned in its note that upstream drilling activity may remain subdued amid lower oil prices, rising costs and capital discipline.

HLIB added that the petrochemical sector remains under pressure due to persistent global overcapacity and weak product spreads.

It maintained its 'overweight' call on the sector, with Dialog Group Bhd (KL:DIALOG) as its top pick.