Affin Hwang Research keeps Petronas Chemical as top pick in oil sector

Petronas Chemicals Bhd registered the highest net money inflow of RM9.47mil last week.

KUALA LUMPUR: Affin Hwang Capital Research is maintaining Petronas Chemical as its top pick among the big capitalised companies in the oil and has sector.

It said on Monday that in the small and medium capitalised segment, it likes Bumi Armada and Serba Dinamik.

Affin Hwang Research is turning bullish on oil prices as macro developments over the past six months have been positive

It said in last week’s Vienna meeting, OPEC and non OPEC allies decided to raise production output, effective by July 2018. The group did not announce a targeted number, but to lower compliance rate to 100%, down from the latest 152% in May 2018. 

This would translate to 900,000 bpd incremental production, which is significantly lower than initial expectation of 1.5 million bpd. Iran, Iraq and Venezuela were reported to have opposed the deal. 

The actual production cut has exceeded expectations over the past six quarters, reaching 152% compliance in May 2018, partly at the expense of Venezuela’s current debt crisis. 

Under this new deal, the group will lower compliance rate to 100% from July 2018 onwards. 

“By our estimates, this translates to a total 900,000 bpd incremental production, with OPEC raising 600,000 bpd back to the initially agreed 1.2 million bpd. However, we believe the supply would likely to be lower due to current limitation from certain countries,” it said.

While Affin Hwang Research sees the possibility of short-term pullbacks from the current US$75 level and some volatility ahead, depending on the response of US shale producers, it expects Brent crude oil price momentum to be positive for the rest of 2018.