RHB Investment Research Reports

Regional Oil & Gas - Expecting Deficit in 2H23; Still OVERWEIGHT

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Publish date: Wed, 29 Mar 2023, 10:49 AM
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  • Maintain sector OVERWEIGHT; Top Picks: Dayang Enterprise, Malaysia Marine & Heavy Engineering (MMHE), Yinson, Bangchak Corp and PTT Oil and Retail Business and Thai Oil. We cut our average Brent crude oil price for 2023F to USD83/bbl, as the oil market is projected to remain in a theoretical surplus of 0.6mbpd in 2Q23 before reversing into a deficit of 0.2-0.8mbpd in 2H23. Price support measures are expected from the US and OPEC, if global oil demand turns south.
  • We cut our 2023 Brent crude oil price assumption to USD83/bbl from USD88/bbl, and maintain 2024-2025 projections at USD80/bbl. We lower our 2Q23 projection to USD80/bbl, as we believe it will take some time for overall sentiment to gradually recover – premised on the assumption that the banking crisis is very much well-contained. We also project oil prices to average at USD85/bbl in 2H23. Overall oil demand should remain healthy this year, registering a positive growth of 2.3mbpd. We believe there is little change in the fundamentals of the oil market for now and, more importantly, prices support measures are expected from the US (via replenishing the Strategic Petroleum Reserve) and OPEC (via production cuts) if global oil demand declines.
  • Still a relatively balanced oil market in 2023. We expect the oil market to remain in a theoretical surplus of 0.6mbpd in 2Q23, then reverse into a deficit of 0.2-0.8mbpd in 2H23. We still expect a balanced market, with an average theoretical deficit of 0.1mbpd in 2023. Despite the continuous ban on Russian products, we continue to see the re-routing of these products to other countries. According to Bloomberg, Russia’s crude oil exports by sea are still holding above the 3m bbl/day mark in the past six weeks. Most Russian exports are headed to China, India and other parts in Asia. On the other hand, US production is still projected to deliver the strongest output growth (+0.6mbpd) in 2023, but we expect such growth to moderate amidst a reverse in the rig count uptrend.
  • Sector view. As our oil prices are projected to average at USD83/bbl this year, we do not expect oil companies to scale back their capex and opex spending plans substantially. As such, we believe the recent retracement would be deemed as an opportunity to accumulate on weakness. For Thailand, we like Bangchak Corp and Thai Oil. Thai refineries are expected to see their GRMs improve. Most of these refineries have completed their major maintenance shutdowns in 4Q22, and are now back on track with solid operations. Furthermore, the economic reopening is enhancing the demand for gasoline and diesel for transportation purposes. The recovery in tourism activities also supports the demand for jet oil, which would boost the outlook for the refineries in Thailand.
  • Downside risks to our sector call: Weakening oil prices and demand, as well as a decrease in spending by clients.

Source: RHB Research - 29 Mar 2023

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