Maybank IB stays positive on Malaysia’s O&G sector

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KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB) remains positive on Malaysia’s oil and gas (O&G) sector, saying the decision by the Organisation of Petroleum Exporting Countries (Opec) together with Russia to lower over-compliance reflects the country’s prominence as a swing producer.

In a research note today, it said Opec’s decision to lower over-compliance and adjust to 100% compliance was better than the market’s initial expectation.

“It reflects a tighter control of additional crude oil supply entering into the market and the flexibility to adjust output while still capping a floor price of US$70 per barrel (bbl),” the research firm said.

Though Opec and its allies agreed to increase production from July 2018 onwards, there was no specification as to volume and timeline.

Maybank IB said Opec would seek to ease supply tightness by returning to a 100% compliance with previously agreed output cuts of 1.8 million barrels per day (bpd) after months of over-compliance.

Although the collective decision was vague, it said, the outcome was better than the market’s earlier expectation.

“Consensus was anticipating a one million to 1.5 million bpd rise in output, on top of the earlier agreed compliance volume of 32.5 million bpd crude oil for Opec members, but the members have been collectively producing below that level since November 2017 due to unexpected supply disruptions in Venezuela, Iran, Libya and Nigeria,” it added.

As of May 2018, Opec’s output was at 31.9 million bpd. Based on a 100% compliance rate of 32.5 million bpd, the total rise in output would be 600,000 bpd.

“The market reacted positively to the announcement, and oil prices rose more than US$2/bbl to above US$75/bbl.

“Our in-house crude oil price estimate was between US$70 and US$75/bbl for 2018-19,” Maybank IB said.