Favourable upstream prospects on Brent prices
PETALING JAYA: The outlook for the Malaysian upstream oil and gas (O&G) segment is expected to be favourable, with Brent crude oil prices likely to hover around US$80 per barrel in the near term.

However, overcapacity globally and slow recovery in global demand continues to result in a tepid outlook for the downstream segment. Further improvement in downstream product prices will hinge on the outlook for major economies particularly China and Europe, according to Kenanga Research.

“Year-to-date, Brent crude prices have averaged at US$84.2 per barrel, with a slight weakness shown recently due to concerns on global demand growth.

“However, we maintain our financial year 2024 (FY24) to FY25 Brent average target of US$84 to US$79 per barrel, respectively.

“We expect the Organisation of the Petroleum Exporting Countries and its allies (Opec+) to maintain production cuts in the near term before slowly unwinding the cuts in the later part of 2024,” the research house said in a report yesterday.

Sunway University professor of economics Dr Yeah Kim Leng said the near and short-term outlook of both upstream and downstream is positive, given rising global energy demand to support industrial and consumption growth amid occasional supply disruptions.

“Despite the oil and gas demand forecast to peak around 2030, its share of total energy supply remains high relative to past output and renewables,” he told StarBiz.

The green transition is expected to be gradual and the economics of renewable energy will be a key factor shaping the long term prospects of the O&G sector.

“Opec’s decision to cut production will moderate any sharp or prolonged decline in fossil fuel prices, thereby helping to stabilise prices at the current level,” he said.

For 2025, Kenanga Research expects an easier crude oil market in terms of supply. Nevertheless, it added that the Brent crude price level would still be conducive for oil and gas producers to ramp up their capital expenditure (capex) budget.

“That aside, another reason for the anticipated increase in upstream capex is also due to the underspending by oil producers in the last decade which resulted in aging infrastructure and tight market in the upstream service provider space,” the research house said.

Citi Research said quarter-on-quarter Brent crude oil prices are expected to move sustainably into the US$70 range in the second half of 2024 (2H24), and to US$60 in 2025.

The research firm is maintaining its base case that Opec+ will likely hold production cuts through 2024 and 1H25, before unwinding in 2H25.

“Overall, we maintain our base case that Opec+ likely ends up holding full production cuts through 1H25 in response to soft market conditions, but also note that this supports our view that the group is facing increasing pressure going into 2025 to exit the production cuts,” it said in a recent report.

Kenanga Research said the share of Petroliam Nasional Bhd’s (PETRONAS) domestic capex in 1H24 increased by 20% year-on-year (y-o-y), which indicates the group’s growing focus on the local upstream market. Overall, PETRONAS’ capex was up slightly by 2% y-o-y in that quarter.

“We expect PETRONAS to meet its RM60bil capex budget in 2024, with a greater emphasis on upstream investments, particularly in the local market, to address the urgent need for mitigating natural production declines,” said the research house.
Economy,MYOGMarket,BrentCrude,OpecCuts,UpstreamOutlook,DownstreamTepid,RenewableTransition,PETRONASCapex
The outlook for the Malaysian upstream oil and gas (O&G) segment is expected to be favourable, with Brent crude oil prices likely to hover around US$80 per barrel in the near term.