PETALING JAYA: The price of crude oil, which had risen more than 25% last year, could see a more subdued year in 2020 as the oversupply of oil in the market is unavoidable. This is despite the recent jump in crude oil prices after a top Iranian general was killed in a US airstrike at Baghdad’s airport.
MIDF head of research Mohd Redza Abdul Rahman reckons the recent jump in oil prices is likely to be temporary as there is no impact to the oil supply.
He told StarBiz that “the movement of oil price is mainly controlled by the supply of oil, especially from US shale oil. We expect oil supply in the global market to remain high.
“This is especially so because many US oil and gas companies have a substantial debt maturing this year. This will put pressure on them to ramp up production.”
According to Moody’s Investors Service, North American oil-and-gas companies have more than US$200bil of debt maturing over the next four years, starting with more than US$40bil in 2020.
Redza points out that a further cut in oil production by the Organization of the Petroleum Exporting Countries (Opec) and its allies is not enough to absorb the excess supply of oil in the market. Brent crude oil is expected to average at US$65 per barrel in 2020, he adds. Notably, on Dec 6 last year, Opec decided to further cut its production by 500,000 barrels per day (bpd).
In September last year, oil prices spiked more than 20%, or more than US$11 a barrel, following a drone attack on major oil installations in Saudi Arabia.
But the oil price quickly retreated to its pre-shock level within days as oil inventories remained high.
Despite the not so rosy outlook of global oil prices, the local O&G sector is expected to see more jobs coming in as long as national oil company Petroliam Nasional Bhd (Petronas) remains committed with its capital expenditure plans.
Previouslly, Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin had reiterated that Petronas would like to have a consistent annual capex of RM50bil regardless of market conditions.
According to the latest Petronas Activity Outlook for 2020-2022, industry players could expect steady job flows in Malaysian waters in 2020 in segments such as pipelines and pipe-laying, offshore fabrication, maintenance, construction and modification, offshore support vessels (OSV), as well as decommissioning.
Petronas is targeting 26 drilling rigs in 2020 compared to 24 rigs last year.
Kenanga Research expects local upstream activities to remain elevated this year especially among fabricators and marine vessel players.
“While 2019 has mostly been a rebound year for many local O&G services and equipment providers, we are expecting to see a continuation of the elevated activity levels going into 2020, ” it says in a report.
Among the winners for this year include SAPURA ENERGY BHD, Malaysia Marine and Heavy Engineering Holdings Bhd, ALAM MARITIM RESOURCES BHD, Perdana Petroleum Bhd, Carimin Petroleum Bhd and Velesto Energy Bhd.
Kenanga says although many O&G counters have seen a rally in their share prices last year, there are some laggards in the market that are trading at discounted valuations.
Nonetheless, the Petronas Activity Outlook for 2020-2022 noted that the O&G industry will remain challenging in 2020 amid persistent downward pressure and volatility of crude oil prices.
Petronas said that many contracts are due for re-tendering in the next three years to fit its overall strategy. “This would be an opportune time for players to strategise on resources, new technology offerings and strategic partnerships, ” Petronas said in the report.
AmResearch says that Malaysia’s 2019 contract awards slid 6% year-on-year to RM11.5bil in 2019 due to slower order flows in the final quarter.“In our view, the slower order flows could be temporary given that award timelines tend to be lumpy in the first and fourth quarters of the year, ” it says.
https://www.thestar.com.my/business/business-news/2020/01/06/oil-price-jump-seen-as-temporary
