KUALA LUMPUR (June 22): Petroliam Nasional Bhd (PETRONAS) has few reasons to continue delaying investments as elevated crude oil prices improve project economics and cash flows, according to CIMB Securities.

The national oil company’s spending could also be supported by its substantial cash reserves and the completion of a workforce restructuring exercise initiated in 2025, the research house said in a sector note on Monday.

“We believe there are few reasons for PETRONAS to continue delaying investments,” CIMB said.

The main constraints are PETRONAS’ cash commitments arising from its acquisition of Saudi Aramco’s 50% stake in the Pengerang Refining Company Sdn Bhd and Pengerang Petrochemical Company Sdn Bhd (PRefChem), as well as potentially higher dividend requirements from the government.

However, CIMB viewed these as temporary headwinds that could be partly offset by stronger cash flows from higher oil prices.

The research house maintained its 'overweight' rating on the oil and gas sector, premised on a potential recovery in upstream capital expenditure, while valuations of oilfield services companies remain undemanding.

CIMB said higher and more sustainable oil prices would improve the viability of new projects, while further delays could cause oil companies to miss the current investment cycle and face longer lead times for equipment and services.

It forecast Brent crude prices at US$85 per barrel in the second half of 2026 and US$80 per barrel in the first half of 2027.

Current Brent prices of between US$75 and US$80 per barrel suggest that the market is pricing in a relatively smooth normalisation of oil flows through the Strait of Hormuz, following progress in negotiations between the US and Iran, CIMB said.

The impact of supply disruptions has so far been mitigated by lower global refinery utilisation, alternative export routes used by Persian Gulf producers and releases from strategic petroleum reserves.

Nevertheless, CIMB estimated that cumulative supply losses during the conflict had exceeded one billion barrels.

Replenishing depleted inventories and rebuilding supply buffers could take at least a year, supporting crude oil demand and keeping Brent prices above US$70 per barrel even if flows through the Strait of Hormuz normalise in the near term, it said.

“This remains a healthy price level to sustain upstream investment activity,” CIMB added.

Its preferred sector picks are Dayang Enterprise Holdings Bhd (KL:DAYANG), Dialog Group Bhd (KL:DIALOG) and MISC Bhd (KL:MISC).

Dayang is trading at 10 times price-earnings, below its five-year average of 12 times, despite the potential for earnings upgrades, CIMB said.

Other potential beneficiaries of a recovery in upstream spending include drilling services provider Velesto Energy Bhd (KL:VELESTO), as well as offshore support vessel operators Keyfield International Bhd (KL:KEYFIELD) and Perdana Petroleum Bhd (KL:PERDANA).

For Dialog, a key catalyst is the financial close of the Pengerang Energy Complex’s aromatics plant, while MISC is positioned to benefit from a renewed investment cycle in upstream production assets.

Risks to CIMB’s positive sector view include less severe supply disruptions from the West Asia conflict, a sharper-than-expected global economic slowdown, and weaker global oil demand.