Sector News Flash:
Regional Oil & Gas (Overweight)
Production Cut Rollover a Possibility
Regional Oil & Gas (Overweight)
Production Cut Rollover a Possibility
The
OPEC members are now talking about possible rollover in the production cuts,
should the oil markets require. Saudi Arabia’s Energy and Industry Minister’s
comment that all players are willing to extend their cuts, if necessary, is
positive and supportive of the oil markets and price. We maintain our
OVERWEIGHT on the oil & gas sector and our Top Picks are: Petronas
Chemicals, PTT Global Chemicals, Keppel Corp and Perusahaan Gas Negara.
¨ Sweet spot in the
upstream oil & gas market. The Organisation of the Petroleum Exporting
Countries’ (OPEC) strategy of flooding the world with oil to lower production
from the higher cost producers, over the last two years, has changed to one of
managing the markets. This provides confidence for the upstream producers
(national and international oil companies) that there should be more stability
in the oil markets, thus more large scale projects should move forward over the
next 12-24 months.
We are now in a sweet spot in the upstream
oil & gas markets. We have an oversupply in the oil & gas assets
(jack-up rigs, tender rigs et al) that cater to the E&P companies. The oil
& gas upstream asset owners are now more than willing to accept work at a
depressed price to improve their cash flows, and to survive this long-harsh
winter. According to research group WoodMackenzie, around 20-25 large scale
development projects are to move forward in 2017, compared to nine projects in
2016.
¨ OPEC back to managing
the markets.
The OPEC and non-OPEC production cuts that were agreed upon in Dec 2016 are
only for a six-month period. However, we believe OPEC is now back to actively
managing the oil markets from here on. Bloomberg reported on 8 Feb that oil
ministers from Iran and fellow group member Qatar are now saying that OPEC and
other major crude producing nations may need to extend output cuts in 2H17 in
order to re-balance the market. Additionally, a rollover is an option, if
needed. Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih had indicated
on 16 Jan that “all players have indicated their willingness to extend (their
output cuts), if necessary”. The issue will require further study before a
decision is made. This is positive, and in our view, supportive of crude oil
markets and prices.
¨ The other supplies
that could enter:
i. The US Energy Information Administration’s
(EIA) latest forecast is for total US production to increase to 9mbpd in 2017
(2016: 8.7mbpd). For 2018, the EIA expects an increase of 0.5mbpd, ie to
9.5mbpd. This all depends on crude oil price levels, where higher crude oil
production from the shale oil producers is possible.
ii. Libya and Nigeria (both OPEC members) are
exempt from the current production cuts, as such, we estimate that around
0.8mbpd could possibly enter the markets should political unrest ease for these
two countries.
Kindly click the following link for the full report: Regional Oil & Gas: Production Cut Rollover a Possibility
Kannika Siamwalla,
CFA
Head of Regional Oil
& Gas
RHB Securities
(Thailand) PCL.
Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged. If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication. If you have received this communication by mistake, please notify us immediately by return email and delete the original message. This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
