• Still OVERWEIGHT; Top Picks: Malaysia Marine & Heavy Engineering, Yinson, PTT Exploration & Production, and PTT Oil and Retail Business. While the meeting outcome reiterates OPEC+’s commitment to support and provide stability towards the oil market, we are relatively neutral given the minimal impact to the oil market. We believe the additional voluntary cut of 1mbpd by Saudi Arabia would provide more price support if it is extended to the end of this year.

• OPEC+ extends cut deal to 2024. OPEC+ has decided to keep the current production cut scheme till the end of this year and further extends the deal till end-2024 with slight adjustments. This would bring OPEC 10 and nonOPEC production to 25mbpd and 15.5mbpd in 2024. Amongst the OPEC cartel, Nigeria will take the largest cut with a quota of 362kbpd as compared to the voluntary required production level in 2023. This is followed by Angola (175kbpd), Equatorial Guinea (51kbpd), and Congo (51kbpd) while the UAE’s required production level is lifted by 200kbpd. On the other hand, Saudi Arabia also announced another voluntary cut of 1mbpd in July.

• Minimal impact to oil market. While the meeting outcome reiterates OPEC+’s commitment to support and provide stability towards the oil market, we are relatively neutral on this event. According to OPEC, OPEC 10’s production is at 24.1mbpd – already below the required production of 25mbpd. Furthermore, the additional quote committed in April does not seem to continue in 2024 but has been instead replaced by the adjustments mentioned earlier. Therefore, the net production cut impact YoY by OPEC in 2024 is not significant, and we believe the market may not be overly excited over this. That said, there is no mention of whether Saudi Arabia’s voluntary cut of 1mbpd in July will be maintained till the end of this year since the formally announced production level in 2024 has not factored in such a cut.

• Maintain our oil price forecasts at USD85/bbl, USD80/bbl and USD80/bbl in 2023, 2024 and 2025. Oil prices have been fairly weak due to an uncertain economic outlook including weak China data and US debt ceiling concerns as well as the strengthening of the USD. While Brent prices have been averaging below our projected USD85/bbl in 2Q23, which could provide some downside risk to our full year projection, we are still expecting the oil market to improve in 2H23. In OPEC’s May monthly report, oil demand is still projected to improve by 2.3mbpd to 101.9mbpd in 2023. While there is still risk for such numbers to be trimmed, we are of the view that OPEC+’s influence remains strong and its strategy to protect the oil market – via production cuts – is still intact.

• Downside risks to our sector call: i) Weakening oil prices and demand and ii) a decrease in spending by clients.

Source: RHB Securities Research - 6 Jun 2023