However, the investment bank remains cautious about potential escalations in geopolitical tensions, significant production adjustments by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), and the US Federal Reserve’s monetary policy.
It anticipates Brent crude oil prices to remain relatively stable within the range of US$77- US$84 per barrel (RM340.43- RM371.38) in August 2024 (year-to-date 2024: US$83.51 (RM369.22) per barrel), buoyed by the geopolitical tensions and OPEC+ production cuts, though tempered by lower demand from China.
Meanwhile, natural gas prices are expected to decline in the near term due to oversupply, settling at US$2.10-US$2.35 (RM 9.28-RM10.38) per million British Thermal Units (MMBtu) (YTD24: US$2.24 (RM9.90) per MMBtu) in August, it said in a statement.
“We are highly optimistic about the upstream division, given that its contractual work basis provides operational stability, despite Brent crude oil prices slipping to a maximum threshold of 20%-25% below the current spot price.
“This is on top of Petronas’s expected capital expenditure (capex) of RM50-RM60 billion in 2024,” it said.
However, it noted that the short-term downside risks include the uncertainty in the demand for crude oil, geopolitical risks, and the OPEC+ production cut decision following the drop in Brent crude oil daily spot price to below US$80 (RM353.69) per barrel since the last week of July 2024.
Similarly, the investment bank said it holds a positive view on the midstream sector, particularly the ship tankers and storage facilities, on the back of relatively stable and elevated short-term and long-term charter rates across ship sizes.
It added that the recent decline in crude oil and natural gas prices in late July 2024 is expected to benefit tanker operators, as lower prices may encourage the mobilisation and storage of crude and refined petroleum products, allowing sellers to mitigate charter costs while buyers take advantage of restocking opportunities.
“While we are generally neutral on the downstream sector, we continue to anticipate a recovery in demand for petrochemicals as well as the increase in demand for biofuels and renewable energy,” it said.
Looking ahead, MIDF said the oil and gas services and equipment (OGSE) subindustry will show improved performance in the first half of 2024 (H1 2024).
The upstream division is expected to remain resilient, given the higher capex both globally and domestically (global capex: +24% year-on-year to US$600 billion (RM2,652.87 billion)); Malaysia’s capex: +23.3% y-o-y to RM31.2 billion) and relatively stable Brent crude oil prices.
“Immediate downside risks are the sudden escalation in geopolitical tensions, drastic changes to OPEC+ supply cut, and unfavourable ringgit/US dollar exchange rates.
“We forecast Brent to reach an average of US$82 (RM362.52) per barrel and Henry Hub to average US$2.20 (RM9.72) per MMBtu in August,” it said.
As for the downstream sector, MIDF noted that while uncertainties in petrochemicals persist, the diesel rationalisation initiative has started to yield positive results for end buyers of refined petroleum products.
Demand for Jet A1 and Mogas is expected to remain strong during the upcoming holiday and travel season, barring any changes to the RON95 subsidy as anticipated following the diesel targeted subsidy rollout.
Additionally, the investment bank expects demand for sustainable fuels to surge, driven by the rise in biomass projects across the nation in H1 2024.
This shift will create new revenue streams for downstream players as they refine and distribute these alternative fuels.
“Overall, we believe that the smooth shift to cleaner energy resources will continue into August 2024,” it added.