• OVERWEIGHT; Top Picks: Yinson and Dayang Enterprise in Malaysia, PTT Exploration & Production in Thailand, and AKR Corporindo in Indonesia. We maintain our 2024-2026F Brent crude oil prices at USD85, USD80, and USD80 per bbl. The recent escalation in geopolitical tensions should support oil prices in the near term, but this premium may likely normalise more in 2H24 – assuming that said tensions are not ramped up further.

• Overall global oil demand remains healthy with OPEC projecting a positive growth of 2.2mbpd. Non-Organisation for Economic Co-operation and Development (OECD) regions have the highest projections in demand growth, at 2.0mbpd, for 2024 – led by China, India, the Middle East, and other Asian countries. Meanwhile, the US Energy Information Administration (EIA) and International Energy Agency (IEA) are also projecting another year of positive demand growth, ie up by 1.2-1.4mbpd. Our economist expects global GDP growth to accelerate in 2024. Catalysts: i) Interest rates normalising in 2H; ii) inflation risks dissipating over the same period, moving towards key central banks' objectives; and iii) China's potential economic recovery.

• Disruptions due to the Red Sea crisis are affecting trade flows, leading to higher freight and insurance costs, as well as longer shipping routes. Europe is also importing more crude oil products from the US and West Africa, as trade flows from Asia and the Middle East to Europe are being disrupted. In the near term, we may see the prices of certain products surging. That said, in the longer term, we may continue to see Asia’s top oil importers diversifying import sources to ensure that the supply of feedstocks is uninterrupted.

• We believe OPEC still plays a major part in controlling the oil market. Assuming global oil demand grows by 1.2-1.4mbpd as per IEA and EIA estimates, the market should be relatively balanced this year if OPEC+ extends voluntary production cuts until the year-end. If the demand growth outpaces these agencies’ forecasts to be at 2.2mbpd (as projected by OPEC), this would lead to a theoretical deficit in supply of 1.1mbpd this year and OPEC+ will need to unwind production cuts to accommodate the market. The potential inventory drawdown also suggests oil prices should stay well above USD80/bbl. Meanwhile, we are not overly concerned that Saudi Aramco is keeping its current maximum sustainable capacity at 12mbpd (previous target: 13mbpd) in the near term. That said, we are unsure whether there is a change in its long-term oil demand view which has led to this, but it may affect oil capex spending in the long term.

• US crude oil production growth to moderate. The EIA expects production to average at 12.9mbpd (+9%, +1mbpd) in 2023, and at 13.1mbpd (+1%, 0.2mbpd) in 2024. This implies a slight moderation from the latest data, before a surge to a new record high in Feb 2025. Major US shale producers are likely to prioritise capital discipline to reward shareholders this year vs aggressively ramping up production. Downside risks to our outlook: Weaker oil prices and demand, as well as a decrease in spending by clients

Source: RHB Securities Research - 15 Feb 2024