Flattish crude oil prices ahead to impact Petronas

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KUCHING: Crude oil prices will not likely rise significantly given the persistent supply-demand imbalance, analysts observed.

Following the announcement of Petroliam Nasional Bhd’s (Petronas) third quarter of 2017 (3Q17) results, the research arm of AmInvestment Bank Bhd (AmInvestment) said, “As Brent crude oil spot has averaged at US$53 per barrel since the beginning of this year, we maintain our 2017 to 2018 projection at US$50 to US$55 per barrel for now.

“As a comparison, Petronas is projecting an average of US$45 per barrel for 2017 while the Energy Information Administration (EIA) forecasts US$52.60 per barrel for 2017 and US$57 per barrel for 2018.”

It further explained that the price trend clarity is muddled by various factors.

These factors include the Organisation of Petroleum Exporting Countries’ (OPEC) ability to ensure quota compliance as prices stabilise, significant capital expenditure (capex) reductions which signal under-investment for future needs, and the increased proportion of renewable sources for electricity generation which could reduce liquid consumption and lead to ‘peak oil demand’.

Also, the pace of US deregulation under the Trump administration could further accelerate crude output growth, on the back of the decoupling of global economic growth from carbon dioxide emissions since 2000 in tandem with the shift towards gas and other energy alternatives together with fuel-efficient hybrid automobiles.

Meanwhile, on activities in the oil and gas (O&G) sector in Malaysia, AmInvestment believed that there would not be any significant change in Petronas’ cautious approach to upstream exploration and development expenditures.

“For 3Q17 to date, contract awards have plunged by 68 per cent quarter-on-quarter (q-o-q) to RM689 million due to the lumpy RM1 billion Bokor central processing platform in 2Q17.

“The overall trend is also dismal as the contract awards fell 45 per cent year-on-year (y-o-y) to RM4.9 billion in the first nine months of 2017 (9M17).

“For Malaysian operators, which operate wholly offshore, these weak capex rollout prospects forebode that the worst can stretch for quite a while for those struggling with high gearing such as Bumi Armada, Alam Maritim and UMW Oil & Gas,” it said.

On the other hand, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) pegged a more positive view on the prospects of Malaysia’s O&G sector.

In a report, it said: “Operationally, we expect O&G activities in Malaysia to pick up in 2018, as Petronas is expected to announce several major services awards (which are the offshore support vessel and fabrication services).”

Meanwhile, the research team noted that there are several events to look out for which could impact the O&G sector.

“The OPEC’s meet this month will be closely monitored, as the outcome could shape the direction of crude oil price. The foregone conclusion is to extend the production cut to 2018. Anything less will be negatively construed. A rising capex trend globally is also another positive trend.”