PETALING JAYA: Investors focusing on oil and gas (O&G) stocks should be selective amid the recent escalation of conflict in the Middle East and the concurrent rise in crude oil prices reflecting worries over supply disruptions.
MBSB Research, which projects global crude benchmark Brent to normalise in the US$80 to US$90 per barrel range in the second half of financial year 2026 (2H26), said while war supports commodity stocks, the market’s focus has now shifted to US monetary policy from geopolitics.
It sees a hawkish US Federal Reserve (Fed) as a constraint to a run-up in commodity stocks, as energy, freight and input-cost pressures feed into inflation expectations.
“The latest escalation strengthens that concern,” it added.
“In other words, the conflict can help commodity beneficiaries, but it can also increase the probability that the Fed stays hawkish.”
While suggesting adding plantation stocks as part of a “key tactical overweight” portfolio, it said investors should be selective in O&G stocks.
It prefers midstream and infrastructure-style O&G exposure as the outlook remains dependent on the resolution of the Middle East conflict and the durability of energy demand.
“Meanwhile, if any Fed hike proves to be an adjustment hike rather than the start of a prolonged tightening cycle, selected recovery names could regain momentum later in 2H26,” it said.
Kenanga Research projects Brent to average at US$80 in 2026 and US$74 in 2027.
“This view is broadly consistent with our expectation of a gradual de-escalation in the US-Iran conflict,” it said.
“However, we also believe Brent crude prices are unlikely to fall below US$70 a barrel, supported by a higher geopolitical risk premium.”
“That said, the path forward is unlikely to be entirely smooth, particularly given Israel’s continued involvement in Lebanon.
“Overall, we expect an agreement to be reached over the coming months, a scenario that appears to have been partly reflected in the recent pullback in Brent crude prices from US$113 a barrel in May to around US$81 a barrel at time of writing,” it added.
The brokerage does not expect crude prices to reach new highs this year or next despite remaining elevated but may trade at higher range-bound levels compared to the levels seen in 2025 and early months of 2026.
“In our view, the current crisis (US-Iran) will result in higher awareness on energy security, and therefore, might result in slightly higher demand for crude (for building higher storage) but we believe that this is sufficient to only give short to medium term boost in demand and not long-term structural demand hike,” it added.
It sees a cyclical uptrend in upstream capex being ramped up from Petroliam Nasional Bhd (PETRONAS) over 2027 and 2028 that can lead to a potential rerating of O&G-services related providers.
On the Middle East front, Wasco Bhd
could be a beneficiary due to its presence in the region. Kenanga Research has a “outperform” call and target price (TP) of RM1.32 for the stock.
It has Petronas Dagangan Bhd as the big-cap top pick with an “outperform” call and TP of RM21.20 as the 24% share price drop has become unjustified because of the lower risk of further cuts in the RON95 subsidy following the move to reintroduce diesel subsidies that had been floated since 2024.
“The commercial segment might also benefit from the long-term structural demand growth trend for aviation fuel due to growth in air traffic, the upstream services play, in our view, will take a longer time to play out and we caution investors to have more patience weathering through the near-term earnings uncertainty in the remaining of 2026,” it said.
Furthermore, the research house views Uzma Bhd, which has an “outperform” call and TP of 70 sen as an under-appreciated high beta play to the potential upstream capex upcycle in 2027 and 2028 as the stock has a low valuation at four times its financial year ended June 30, 2026 price-earnings ratio.
“The next play we like is Dayang Enterprise Holdings Bhd (“outperform” call and TP of RM2.45) as it is a lower risk play to upstream capex due to its more robust balance sheet and track record for upstream maintenance,” it said.
