PETALING JAYA: Oil prices are likely to stay volatile in the coming months, driven by heightened geopolitical risks and planned production increases by the Organisation of the Petroleum Exporting Countries and its allies (Opec+).
For Malaysia’s oil and gas (O&G) industry, the current rally in crude prices may offer a short-term lift, but analysts warn that structural headwinds remain.
Kenanga Research noted that Brent crude’s 14% rally last week, spurred by Israel’s strike on Iran and tightening US inventories, may not be sustainable.
“At this juncture, we view a full-scale regional conflict is of low probability and thus will be averted,” the brokerage said, adding that the majority of global leaders are urging for calm and de-escalation.
However, it added that the geopolitical risk premium from the Israel-Iran conflict will likely fester, as investors remain vigilant about potential responses, at least for a quarter.
Kenanga Research expects Brent crude oil prices to retreat in the fourth quarter of financial year 2025 (4Q25), potentially falling below US$60 per barrel as Opec+ unwinds its production cuts.
“We maintain our Brent crude price forecast at US$64 per barrel for the time being, until more details (emerge as) the situation in Israel and Iran unfolds,” it said.
While earnings across the local O&G space were mixed in 1Q25, some upstream service providers are still holding up.
“Selective guidance remains robust in the upstream services space despite the macro headwinds,” the research house said.
Maintaining its “neutral” call, Kenanga Research recommends that investors stay defensive for now.
It favours upstream maintenance providers due to their more inelastic demand and highlights Keyfield International Bhd
and MISC Bhd as potential beneficiaries if tensions escalate.
Meanwhile, Hong Leong Investment Bank (HLIB) Research has slightly raised its 2025 Brent crude forecast to US$67 per barrel, citing higher geopolitical risk.
“We are raising our stance to ‘tactical underweight’ from ‘neutral’ in light of the sharp rebound in oil prices, driven by heightened geopolitical risk,” it said.
The brokerage sees potential upside in selected upstream names.
“We see compelling risk-reward in select counters trading at undemanding valuations of less than 10 times price-to-earnings and offering attractive dividend yields (of more than 5%), such as Dayang Enterprise Holdings Bhd, Velesto Energy Bhd and Deleum Bhd.”
However, HLIB Research cautioned that demand fundamentals remain weak.
“Assuming no material changes on the supply side, we reckon the oil demand-supply fundamentals remain lacklustre, dragged by Opec+’s accelerating production hikes and demand uncertainty caused by US’ Liberation Day tariffs,” it noted.
HLIB Research also warned of a possible supply disruption if the Straits of Hormuz were closed, though considered such a scenario unlikely.
UOB Global Economics & Markets Research is more bearish, maintaining its Brent crude forecasts of US$65 per barrel for 3Q25 and US$60 for 4Q25.
“The accelerated pace of supply resumption from Opec+ is a major negative,” it stated, adding that slowing global demand remains a concern.
“The risk of a more pronounced global growth slowdown in the later months of 2025 and into 2026 has increased,” it explained.
The research house flagged two key variables that will shape oil’s trajectory: Iran’s response and Opec+’s supply decisions.
“Ultimately, two key variables will determine whether this latest rally in Brent crude oil price is sustainable and how much further prices might rise,” it noted.
While the worst-case scenario involves a Straits of Hormuz blockade, the brokerage acknowledged that questions remain over Iran’s ability to mount effective retaliation.
