• Reuters reported that the Organization of the Petroleum Exporting Countries (Opec) and allies, including Russia, are considering to cut their oil output by a further 500,000 barrels per day (bpd) due to the impact on oil demand from the Wuhan coronavirus outbreak.
• Regarded as Opec+, these major oil exporting countries are planning to arrange a ministerial meeting on 14–15 February this year, earlier than the current schedule on 5–6 March 2020.

• Russia, the largest non-Opec producer, has said that it was ready to bring forward the Opec+ meetings to February. An Opec and non-Opec panel called the Joint Technical Committee (JTC) has scheduled a meeting on 4–5 February this year in Vienna to assess the impact of the coronavirus outbreak on oil demand with a recommendation likely to be made on further action to support the market.

• The Wall Street Journal reported that another option being considered is a temporary cut of 1 million bpd by Saudi Arabia to support the market.

• Recall that Opec+ has been reducing oil supply to support prices, agreeing in December 2019 to cut output by 1.7 million bpd until the end of March. The partners are also discussing extending the duration of the cuts until at least June this year.

• Brent spot crude oil prices have fallen by 20% to US$53/barrel currently since the beginning of this year, partly due to concerns that global economic growth could be impacted by the coronavirus outbreak.

• In December last year, following the decision by Opec+ to cut production quotas by an additional 500,000 barrels on 1 Jan 2020 to 2.1mil barrels amid expectations of the US and China entering into the first phase of a trade deal, Brent crude oil prices were trading well above US$60/barrel, reaching an average of US$64/barrel in 2019.

• With US crude inventories stabilizing at 431K barrels since the beginning of the year, we maintain our 2020–2021 crude oil forecast at US$60–65/barrel.

• Since the beginning of 2019, the EIA's Short-Term Energy Outlook has continuously revised its crude oil projections, moving its Brent oil projection between US$60/barrel and US$70/barrel and currently settling at US$65/barrel for 2020 and US$67/barrel for 2021.

• For the oil & gas sector, we maintain OVERWEIGHT as prospects have radically brightened with rising asset utilization globally which supported service providers’ improving results.

• While we have BUY calls for MISC, Sapura Energy and Velesto Energy while our top picks are still companies with stable and recurring earnings such as Serba Dinamik and Dialog Group.

• We like the recurring income business model of Dialog and Serba Dinamik, which are involved in operation and maintenance services while Dialog’s earnings visibility is further secured by the Pengerang Deepwater Terminal project with its enlarged buffer zone.

Source: AmInvest Research - 4 Feb 2020