RESEARCH firms have downgraded the oil and gas (O&G) sector due to a significant drop in the global crude oil price.

Affin Hwang Capital and Hong Leong Investment Bank (HLIB) downgraded the O&G sector from "positive" to "neutral", while AllianceDBS Research kept its "neutral" call.

Analysts said the lower price, however, was "timely" as this will positively reduce the cost of living and bring down the country's inflation rate.

Affin Hwang Capital said the impact on inflation would be minimal and expected it to remain manageable at around 3.2 per cent in 2014.

"Our calculation on the possible decreases in the monthly Consumer Price Index (CPI) indicates a 3.5 per cent drop in RON97 petrol, 1.7 per cent drop in RON95 petrol and 1.4 per cent increase in diesel.

"The drop, which contributes a weight of 8.5 per cent in the CPI basket, will lower inflation by 0.15 percentage point to CPI in December," it said.

HLIB said the lower oil price would be a dry spell for the O&G sector in the near term.

"The capex will remain to prevent production from falling. But decreasing oil price, coupled with lack of near-term contracts, will continue to dampen investor sentiment," the research house said in a note. Bernama