PETALING JAYA: Petroliam Nasional Bhd’s (PETRONAS) latest Activity Outlook for 2026 to 2028 reinforces analysts’ cautious view on Malaysia’s oil and gas (O&G) services sector, with activity expected to remain uneven and several upstream segments facing moderation next year.
This comes amid rising global crude oil prices, mainly driven by heightened geopolitical risks.
Brent crude futures rose above US$70 a barrel last month, the highest since last July, putting the global benchmark on track for its biggest monthly gain since January 2022.
Nonetheless, market watchers said the recent rally was driven more by a repricing of risk than by changes in the sector’s supply and demand dynamics.
SPI Asset Management managing director Stephen Innes said what has not changed is that “it has not been a demand renaissance but a repricing of geopolitical risk layered on top of a market that had grown far too comfortable with the surplus story”.
“Crude oil is on track for its first monthly gain in five months not because balances suddenly tightened in a structural way, but because the market had underpriced geopolitical optionality and was forced to buy it back in a hurry,” he told StarBiz.
Escalating US‑Iran tensions and associated geopolitical risk premiums, supply uncertainties from Venezuela’s exports, and production disruptions caused by severe winter weather in the United States have led to an 8% increase in Brent crude oil prices year-to-date to US$64.77 per barrel.
Innes pointed out that while geopolitics is clearly the spark, it is not “the whole fire”.
He added that Iran is doing most of the heavy lifting, as this is not just about losing barrels, but about flow risk and escalation risk.
“The Strait of Hormuz does not need to close for prices to react. The reminder that it could is enough to trigger short covering and reinsert a few dollars of insurance premium into the curve.
“Venezuela is more background noise than a primary driver, but together they were sufficient to shake a market that had been trading as if nothing bad could happen,” he said.
Last week, the arrival of a US aircraft carrier strike group and guided-missile destroyers in the Middle East marked a clear escalation in tensions between the United States and Iran.
Despite holding the world’s largest proven crude oil reserves, Venezuela’s oil production and exports remain well below potential due to years of underinvestment, mismanagement and international sanctions.
Despite ongoing volatility in the O&G sector, a supply surplus is still expected in 2026, given that underlying fundamentals have not changed.
What has changed, Innes said, is timing.
“The surplus narrative is still there, just temporarily muted by geopolitics and positioning. Near-term balances can tighten even in an oversupplied world when outages, weather, and geopolitics collide. That’s how prices can rally while the medium-term math still points to too many barrels,” he said.
Innes said the Organisation of the Petroleum Exporting Countries and its allies (Opec+) is likely to sit on its hands, let the premium do its work, and reassess once the market returns to trading on fundamentals rather than headlines.
In its latest meeting, Opec+ agreed to keep oil production levels unchanged for March 2026, maintaining a pause on planned output increases amid geopolitical uncertainties and seasonally weaker demand.
Opec+ had earlier raised production quotas by roughly 2.9 million barrels per day from April to December 2025, equivalent to about 3% of global demand.
“Looking ahead to Opec+, the incentive structure is straightforward. The base case is policy inertia. Reconfirm the current framework signals discipline, and avoid becoming the source of volatility while geopolitics is doing that job for free.
“Prices have recovered enough to buy patience, not confidence. This rally looks all about geopolitical risk-driven rather than demand-validated, and Opec+ understands that leaning into it by adding supply would likely cap the move rather than monetise it,” Innes said.
Be that as it may, upstream oil drillers like PETRONAS are unlikely to be affected as long as oil prices remain above US$60 per barrel.
“Prices at such levels are supportive for the industry. It is neither too expensive nor too cheap — not too expensive as to cause a shift toward alternative energy sources such as gas and renewables, and not too low that O&G companies lose the incentive to invest and roll out their capital expenditures,” an executive director of a local O&G firm told StarBiz.
On Petronas’ Activity Outlook report that was released last week, analysts said that while plant maintenance and selected hook-up and commissioning (HUC) works are expected to remain resilient, drilling rig demand and offshore support vessel (OSV) utilisation are projected to moderate in 2026.
This reflects a normalisation of activity levels and lingering uncertainty over oil prices, as well as the unresolved PETRONAS–Petros dispute.
Further, although exploration activity is expected to pick up from 2026 onwards, analysts cautioned that the benefits for upstream service providers are likely to be felt later, as exploration spending typically translates into development and production work only in subsequent years.
According to Kenanga Research, exploration activities are expected to ramp up significantly in 2026, setting the stage for greater upside potential for service providers over the longer term (from 2027 onwards).
However, guidance for upstream maintenance, drilling and OSV requirements for 2026 has declined compared with the outlook released for 2025 to 2027, indicating a weaker activity outlook from PETRONAS.
“Nevertheless, we believe that the weaker outlook has been largely priced in by the market for listed upstream service providers and we take comfort that rig and OSV activities are expected to be largely flattish year-on-year in 2026 compared to actual 2025 data.
“We maintain that the upstream service providers may have reached bottom valuations, with low risks of further asset impairments, but catalysts remain lacking for the sector, at least in the medium term,” Kenanga Research said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said that, overall, in its view, PETRONAS’ Activity Outlook points to HUC and plant maintenance providers as the key beneficiaries, while drilling rig players may see weaker activity in 2026.
“Looking ahead, a gradual downtrend in offshore maintenance, construction and modification (MCM) activity levels is expected over 2026 to 2028, reflecting a normalisation in maintenance scope.
“This is likely to pose a mild headwind to Dayang Enterprise Holdings Bhd
’s topside maintenance activities, while the resilience in HUC demand is expected to provide earnings support for contractors with stronger exposure to commissioning works, such as Deleum Bhd,” the research house said.
Tradeview Capital fund manager Neoh Jia Man said the risk of a potential skirmish between the US and Iran remains a key factor to watch in the crude oil price trajectory.
He added that any escalation into a direct conflict could trigger a sharp spike in oil prices this year.
“Although Iran’s crude exports are sanctioned, a significant volume of its oil continues to flow through the black market, including via ship-to-ship transfers off the coast of Malaysia. As a result, Iranian crude is still reaching the global oil market, albeit at a discount.
“Hence, if Iran were to enter a war and its oil supply were to be materially disrupted, this would have a significant short-term impact on the global oil market and could trigger a spike in oil prices,” he said.
Neoh noted that the impact on crude oil supply from the US military operation in Venezuela earlier this month remains limited due to the sanctions and longstanding operational issues in Venezuela’s O&G sector.
“Venezuela’s oil output is actually quite minimal, despite sitting on a vast amount of reserves. With the United States not heading towards a full-scale war with Venezuela, any supply disruption appears contained for now.
“Over the longer term, however, if US involvement manages to spur supply growth in Venezuela, this could be negative for global oil prices, given Venezuela’s large reserves and its potential to ramp up production.
“In the near term, the impact of US actions involving Venezuela is expected to be minimal for the oil market, especially when compared with Iran, which currently produces a more material volume of crude,” he said.
