NO QUICK FIX FOR THE RINGGIT: NEW OPEC DEAL TO CUT OIL SUPPLY WON’T HEAL MALAYSIA’S RAVAGED O&G SECTOR SO SOON

PETALING JAYA – The Organisation of Petroleum Exporting Countries’ (Opec) plan to cut oil production, which has boosted global oil prices, is not expected to have an immediate positive impact on the Malaysian oil and gas industry, according to analysts.

This is because most of the oil and gas players are involved in the services segment within the industry. Hence, analysts said, they don’t expect the local oil and gas stocks to see significant improvement in their financial performance.

Downstream firms are generally dependent on upstream players for their jobs, and the promised production cut will need time to trickle down to propping up oil prices amid uncertain global outlook, before it warrants a pick-up in upstream activities.

Upstream players are Petroliam Nasional Bhd (Petronas), Shell, SapuraKencana Petroleum Bhd and Hibiscus Petroleum Bhd, to name a few.

Kenanga Research analyst Sean Lim opined that while the revival rate of upstream activities will not be so encouraging, it will definitely instill more confidence to oil majors to fork out more capital expenditure (capex).

“I think the process (of pumping in money) will be slow because cash conservation is the priority at this point of time,” he told SunBiz.

MIDF Research analyst Aaron Tan Wei Min concurred, saying that any budgeting has to be associated with oil companies’ long-term view and outlook on the industry.

“Oil price is just one of many factors to be considered. So I don’t think that capex will be revised upwards. Nonetheless, if oil prices are sustainable at above US$50 (RM207), or maybe US$60 (RM248) per barrel, then there is a possibility that capex will be revised,” he opined.

To turn pessimism into optimism, Tan said the global oil market has to see a more meaningful and sustainable price level, which could take years.

“Even though it is sustained for six months to one year, it’s still not meaningful enough,” he said.

Tan highlighted that the cost structure for upstream players has become lower in the current low oil price environment, which could see reduction in services jobs even though oil prices bounce back to a certain high level.

“They’ve re-regulated their activities, what they want is efficiency. Although you’re extracting more oil, you do not necessarily need more FPSO (floating production, storage and offloading) or extra workers, that’s not the case anymore,” he explained.

Last week, Opec, which produces about 41% of the world’s crude oil, said it will cut production to between 32.5 and 33 million barrels per day from 33.47 million in August, a move that surprised the market. A finalised plan however, will only be announced at their next meeting scheduled for Nov 30.

Analysts are still maintaining their forecasts for oil prices for 2016 and 2017 at the moment, with Tan projecting US$45 and US$50 per barrel and Lim US$47 and US$51.

Lim said if there are more aggressive cuts in oil production, crude prices could rise above US$50 or reach close to US$60 a barrel.

THE SUNDAILY

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