PETALING JAYA: Uncertainty arising from recent geopolitical tensions in the Middle East is likely to support oil prices in the near term.
RHB Research, for one, has lifted its 2024-2025 forecasts on Brent oil prices to US$88 and US$83 per barrel, respectively. It said the recent escalation in Middle East tensions spells two probable scenarios in the coming months.
“We think the base-case scenario is for tensions to stay isolated within selected countries in the Middle East, suggesting that the collateral damage may be limited to the broader region and the Group of Seven (G7) members.
“In this scenario, we discount the possibility of a further escalation between Israel and Iran, with both sides taking a defensive (rather than offensive) stance in the current conflict.
“The second scenario is the possibility of the conflict spreading into the broader Middle East region, which may be further exacerbated should the G7 be forced into military intervention.
“At this point, this is likely a tail-end risk,” said RHB Research.
But should tensions escalate, the research firm sees “upside risks for Brent crude at a high of US$140”.
“It is worth noting that Brent edged towards US$140 in 2022 during the onset of the Russia-Ukrainian conflict. Prices could stay elevated for longer, depending on the magnitude of the event,” the research house said.
However, it added the disruption to the oil market at this stage is manageable assuming there is no further escalation between Iran and Israel.
Iran’s crude oil production stood at 3.2 million barrels per day in the first quarter of 2024 (1Q24).
According to the research firm, any supply disruption should be well covered by the Organisation of the Petroleum Exporting Countries’ and its allies (Opec+) spare capacity, of which Saudi Arabia and United Arab Emirates account for the largest portion.
Meanwhile, RHB Research said the recent re-imposition of US sanctions on Venezuelan oil is likely to have minimal effect on the oil market given the latter’s oil production was only at 0.8 million barrels a day in 1Q24 and the trading pattern could shift towards China at discounted prices.
The research firm said local oil and gas companies involved in exploration and production should benefit from stronger prices. It also continues to like upstream service providers, which are expected to benefit from robust activity, solid charter rates amid increased domestic capital expenditure (capex) allocations.
Meanwhile, Kenanga Research maintains its Brent crude oil price assumption of US$84 for 2024, For 2025, it foresees the price averaging US$79 assuming Opec+ discontinues planned production cuts by end-2024.
It said these oil price levels are supportive of upstream investment locally, considering the under-investment by producers in the early 2020s.
“We like offshore supply vessel owners due to a supply crunch on a surge in demand leading to strong charter rates, and the floating, production storage and offloading players given the current upcycle in this segment. It said the storage segment is also showing signs of recovery.
The research firm believes that Petroliam Nasional Bhd (PETRONAS) is likely to adhere to its RM60bil capex target in 2024 with a significant share dedicated to upstream activities. The national oil company is likely to focus on modernising ageing oil production platforms across Malaysia.“This anticipated commitment to reaching its annual capex target marks a departure from the 2021-2023 period, during which PETRONAS’ expenditure fell short of the RM60bil mark,” said Kenanga Research.
