Brent oil testing USD70. We maintain our Overweight recommendation on oil and gas sector as we see recovery in activities is gaining momentum aided by higher oil price. Thus far, benchmark Brent crude oil YTD average price of USD62.7/bbl is 42% higher yoy than similar period last year (2020: USD44.1/bbl). At this juncture, we retain our Brent average price forecast for 2021 at USD65/bbl as we believe supply-demand outlook is quite balanced.
On the demand side, there is strong optimism that oil demand will stage a strong recovery in 2H21 led by developed economies which has seen the progress in Covid-19 vaccination. This has helped key nations in the US, Europe and China to curb Covid-19 infection. However, as the rollout of Covid-19 vaccination is still uneven, the resurgence in number of cases in countries such as India, Thailand and Japan posed risk to the global oil demand. We think this will limit the upside to the oil price in near term, coupled with the expected more supply from the OPEC+. This, too, should be able to ensure enough supply to meet the anticipated strong seasonal demand from summer driving season in the developed country, in our view.
US oil production was still largely flat at 11m bpd for the seventh consecutive month, highlighting challenges to arrest the production decline from existing wells. That was despite the rise in oil rigs which slowly creeping up to 344 units from lowest level recorded in Aug 20 of 180 units. This is largely within our expectation. According to US EIA, the US oil production typically follows changes in oil prices with about 4-6 months lags. With the expected slower US supply response, the lag in production could now be extended to 8-12 months.
CPO prices at record high. Price for CPO local delivery and futures contract on Bursa Malaysia Derivatives rallied the past two-weeks, trading above RM4,400/MT. This higher price trend is seen as a reflection of the anticipated tight supply of vegetable oils compounded by improving demand scenario and rally in soybean (SBO) and rapeseed oil prices. Soybean oil, the closest substitute for palm oil, is trading at its highest level, breaching 60cents/barrels on a combination of supporting factors namely 1) the prospect of tight supply due to unfavorable weather condition in North America and southern Brazil, and 2) strong demand from China.
We estimate CPO price for the second-quarter of 2021 to trade within a range of RM4,700/MT and RM3,800/MT; given the optimistic view on CPO price outlook, underpinned by a slower-than-expected PO production and improved demand. Based on the CPO uptrend this year, plantation companies are likely to see sequentially higher earnings for the remainder of the year as ASP rises.
We expect CPO price to see downward adjustment in 3Q21 however, with FFB production entering its productive months and demand start to normalized as restocking activities and demand for festivities completed. Supply of soybeans from America and Brazil are coming into the market with possibility of good production numbers due to favorable weather and increase in planting acreage in 2H21.
Source: BIMB Securities Research - 10 May 2021
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024