PETALING JAYA: The oil and gas sector is currently in a state of equilibrium, according to MBSB Research.
The research house said the sector is facing lower commodity prices, reduced capital spending and a challenging services market. However, at the same time, there are positive factors too, it added.
These include the resilience of natural gas and liquefied natural gas (LNG), stable midstream demand, and a more positive long-term outlook.
“The sector is not expected to see a significant surge in earnings or valuations in the near term and is highly likely to be focused on selective segments,” MBSB Research said.
However, the research house said it believes the sector also has strong foundational elements that prevent a major collapse.
This ensures that it will perform broadly in line with the wider market, with limited short-term catalysts, barring any events that would warrant a spike in oil and gas prices and further sustain the surge.
The research house maintained its “neutral” call on the sector, its top pick being MISC Bhd
with a “buy” call and a target price of RM8.13.
“We favour MISC for its strong business model built on stability and long-term growth, effectively insulating it from the volatility impacting other segments.
“MISC’s core revenue comes from long-term contracts for its LNG carriers and offshore assets, providing predictable earnings,” MBSB Research added.
It highlighted that the company is also strategically aligned with the resilient natural gas market and the global energy transition, as evidenced by its robust LNG carrier fleet and its involvement in next-generation technologies like liquefied carbon dioxide carriers.
“This combination of stable cash flows, exposure to growth sectors, and a defensive posture against short-term market fluctuations makes it a compelling company to look into, amid the uncertainties and headwinds plaguing the sector,” the research house noted.
On the outlook of the sector, MBSB Research said it believes the downward pressure on oil prices will continue.
“The global oil supply is expected to remain positive in August, driven by the continuous unwinding of the voluntary production cuts by the Organization of the Petroleum Exporting Countries (Opec) and the sustained production growth from non-Opec countries, notably Brazil and the United States,” the research house said.
It also cautioned about the rise in global oil inventories, mostly in China, ahead of the full impact of the US trade tariffs on the industrial sector around the world.
“This signals that the market may be well-supplied in the coming months. Additionally, demand growth has been projected to slow due to uncertainty in the economy and the rapid shifts to cleaner energy,” it said.
The research house said it expects Brent crude to average around US$67 per barrel in August.
“We still maintain vigilance on the geopolitical risks that could cause sudden price spikes, as well as any further Opec decisions on supply cuts,” it added.
MBSB Research anticipated similar mixed results for the second quarter of this year.
“Given that the Malaysian oil and gas sector is highly correlated with global trends, we expect that oil and gas companies are likely to face the same headwinds that impact their international counterparts,” the research house said.
