PETALING JAYA: The heightened US-Iran tensions have increased volatility in the energy market, but the price impact will likely be temporary unless underlying supply and demand fundamentals change in a sustained manner.
MBSB Research noted that the short-term geopolitical risk premium has risen following the move by Iran to temporarily close the parts of the Strait of Hormuz for live-fire military exercises.
The Strait facilitate the transit of 20% of global oil flows, and the move marks a rare escalation and has not happened since the Iran–Iraq war in the 1980s.
“While Iran’s actions underscore the latent geopolitical risk embedded in global energy markets, the current incident appears tactical rather than structural.
“Unless disruptions to the Strait of Hormuz become sustained or escalate into direct military confrontation, the impact is expected to remain short-lived, consistent with prior geopolitical flare-ups observed in recent years,” the research house commented in a report on the issue.
Furthermore, this move comes as the presence of multiple US aircraft carriers in the region coincides with both countries trying to negotiate a settlement to Iran’s nuclear programme and military capabilities.
Brent crude futures prices moved decisively higher on Iranian action, surpassing the US$70 a barrel level on the development, but are well below the one-year high of US$82.03 per barrel.
MBSB Research suggests the price action reflects a risk premium rather than a structural shift in underlying supply and demand fundamentals.
It thus has maintained its neutral stance on the oil and gas sector to reflect the challenging macroeconomic backdrop.
The research house added the stance reinforces its view that crude oil prices will remain depressed as the market continues to grapple with a structural surplus of supply, which is expected to cap sustained upside despite intermittent geopolitical-driven price movements.
MBSB Research’s top sector pick remains Dialog Group Bhd
with a buy call and target price of RM2.17 a share.
“We favour Dialog for its defensive midstream exposure, anchored by its extensive tank terminal and infrastructure assets.
“The group’s earnings profile is largely underpinned by long-term take-or-pay contracts and lease arrangements, providing stable and recurring cash flows that are largely insulated from short-term crude price volatility,” it stated.
