PETALING JAYA: The Organisation of Petroleum Exporting Countries and allies’ (OPEC+) surprising decision to cut output by around 1.16 million barrels per day (bpd) is expected to produce positive upstream prospects for local players.
In a note today, MIDF Research believes that some 1,300 local oil and gas services and equipment companies will benefit from the higher crude oil prices in the short term.
“While the higher oil prices will be a possible headwind for the midstream’s refineries and the downstream in relation to sales of refined products, it bodes well for the upstream in terms of exploration and production activities,” it said.
The voluntary supply cut of 1.16 million bpd for May 2023 brings the group’s total amount of supply cuts to 3.66 million bpd, or 3.7% of global demand.
Saudi Arabia will be cutting output the most by 500,000bpd, followed by Iraq (211,00bpd), the United Arab Emirates (144,00bpd), Kuwait (128,00bpd) and Kazakhstan (78,000bpd).
MIDF said the cut was collectively anticipated for the group’s June meeting prior to this announcement.
The United States had argued that further supply cuts are not advisable given the uncertainty in the global market.
Bloomberg reported that West Texas Intermediate crude oil soared as much as 8%, the biggest intraday move in more than a year, and traded at US$79.60 (RM352.11) a barrel at 9.44am today.
“The aim of the supply cut is to ensure a stabilised market for crude oil and as a pre-emptive step in the event of a decline in demand in the near-to-mid-term,” said MIDF.
“We opine that this announcement is fair to ensure a more stabilised oil price, which subsequently will continuously support the recovery of underinvested upstream operation,”
The research houses’ top pick for the sector is Dialog Group Bhd, which provides technical services to the upstream, midstream, and downstream sectors in the oil, gas, and petrochemical industry.
MIDF has a “buy” call with a target price of RM3.28.
“We like Dialog for its integrated approach to its operations, together with its exploration and production ventures and expertise in providing technical services to the upstream. Hence, we believe an elevated crude oil price will support its upstream related operations,” it said.
At 11am, Dialog’s share price was up 0.85% or 2 sen to RM2.38, giving it a market capitalisation of RM13.44 billion.