PETALING JAYA: Crude oil prices are expected to remain under pressure in the second half of 2025 (2H25), as increased production from the Organisation of Petroleum Exporting Countries and its allies (Opec+), coupled with fragile global demand, weigh on the market.
This scenario could affect Malaysia’s oil and gas (O&G) revenue, company valuations and capital expenditure (capex).
Brent crude, which briefly spiked to US$81 per barrel after the United States bombed Iran’s nuclear facilities on June 22, has since fallen to US$68 as oversupply concerns resurface.
SPI Asset Management managing partner Stephen Innes said the “downward pressure on crude oil price is likely to persist into 2H25.”
“This is due to Opec+ tapering its voluntary cuts and the fading geopolitical risk premium in the Middle East, compounded by sluggish global demand and ample spare capacity,” he told StarBiz.
Adding to the bearish outlook is US President Donald Trump’s “Liberation Day” tariffs – which could dampen global oil demand – and China’s slower-than-expected crude imports amid economic weakness, according to an industry observer.
Brent started June at a soft level, hovering around US$65 per barrel, after falling even lower in May due to weak demand and expectations of higher Opec+ output.
According to Reuters, four Opec+ delegates indicated that the group will raise output by 411,000 barrels per day (bpd) in August – its fifth straight monthly hike since it began unwinding cuts in April.
This would bring total additional supply to 1.78 million bpd year-to-date, or over 1.5% of global demand.
The industry observer said Opec+ is reviewing production quotas monthly, and there’s no certainty output will continue rising.
“If Opec+ stops its production increases, that would be a positive signal to oil markets.
“Alternatively, if the United States delays its tariffs by another 90 days, that could help support demand,” Innes added.
Another industry player suggested the United States is keeping oil prices low to manage inflation ahead of the tariff rollout.
“With inflation risks, the easiest way to contain prices is by keeping energy costs low,” he said.
He pointed out that of the 12 to 13 million bpd produced by the United States, over eight million bpd comes from shale, and suggested that stockpiling could be a pre-tariff strategy to mask inflation.
“The show and tell will be when the tariffs come into play.”
Opec+ began shifting policy in April after years of deep cuts.
Eight members have since started ramping up production in a bid to regain market share lost to the United States, whose shale producers raised output during the cut period.
Internal tensions – notably Kazakhstan breaching quotas while others complied – also drove the change.
Opec+ is scheduled to meet again on July 6, while the 90-day pause on reciprocal tariffs, announced by the US administration, is set to expire on July 8.
Data from the US Energy Information Administration (EIA) showed that Opec+ produced 42.65 million bpd in the first quarter of 2025, accounting for about 41% of total global output.
The United States contributed 22%, while the remaining 37% came from the rest of the world.
Malaysia, a participant in the Opec+ alliance, produced about 580,000 bpd during the same period.
An analyst covering the O&G sector said oil price movements will largely hinge on Opec+’s decision.
“If Opec+ increases supply, prices may fall to US$60 to US$65 per barrel,” said the analyst, who declined to be named.
Sustained low oil prices could have fiscal implications for Malaysia.
Investment banker-turned-investor Ian Yoong Kah Yin warned that sustained low oil prices may hurt the government’s fiscal position.
“A low oil price will adversely impact Malaysia’s balance sheet, as we are very much dependent on O&G revenue,” he said.
“Malaysia’s economy is intertwined with the global O&G market, making it susceptible to oil price fluctuations.”
Yoong expects Brent crude to slide further to US$55 to US$60 per barrel “unless tensions in the Middle East escalate.”
BIMB Securities analyst Azim Faris Ab Rahim noted that while the government has assumed Brent crude prices of US$75 to US$80 per barrel in Budget 2025, year-to-date prices are averaging closer to US$71.
“However, local crude typically fetches a premium of US$4 to US$5 per barrel over Brent,” he said.
“Hence, while the government may see lower oil revenue this year compared to 2024, it won’t be too far off its budget.
“O&G activities will remain robust as long as oil prices sustain above US$60 per barrel.”
Still, lower prices could squeeze Petroliam Nasional Bhd’s (PETRONAS) earnings.
The national oil company is committed to contributing RM32bil to the government this year, which may limit its spending on upstream capex.
Another analyst pointed to the EIA’s June 5 forecast, which sees Brent averaging US$66 in 2025 and US$59 in 2026.
“If prices remain muted and PETRONAS maintains its dividend commitments, capex may slow. However, capex for maintenance should continue,” the analyst said.
Hibiscus Petroleum Bhd managing director Kenneth Perreira said recent price volatility was driven by geopolitical flare-ups.
“Crude oil prices are back where they are because of the ‘Liberation Day’ impact. They spiked for two weeks due to geopolitical issues in the Middle East,” he said.
However, if prices stay low, he expects US shale production to decline, citing breakeven costs of between US$50 and US$60 per barrel.
Citing energy research firm Rystad Energy, Perreira said US Permian production fell in May due to capex cuts, and the United States rig count – fell by six to 432 last week – a four-year low in June.
“Oil prices could find support in the medium to long term,” he said.
Despite near-term volatility, he believes O&G stocks remain undervalued.
“Opec+ has been responsive to price movements and willing to adjust output. The current uncertainty surrounding tariffs has been impacting oil prices, amongst many other sectors. Once these are resolved, Rystad Energy expects upside to the price,” he said.
Azim shared a similar view, noting that most downside risk has already been priced in.
“We expect Brent to trade at around US$70 per barrel by year-end,” he said.
“If our oil price assumption is realised, we expect more project sanctions to be announced in 2H25, which would bode well for order book replenishment,” he said, adding that “fundamentally, O&G companies are in a much more favourable condition compared to previous market downturns.”
On this front, CGS International (CGSI) Research noted that among local players, Hibiscus Petroleum – a pure upstream company – has the highest sensitivity to oil prices, with a historical correlation of 82%.
It said about 35% of Dialog Group Bhd’s profit after tax and minority interest is tied to upstream business, “though its stable mid-stream segment helps buffer volatility.”
CGSI Research estimates that every US$5 per barrel increase in oil price would boost Hibiscus’ financial year 2026 profit after tax and minority interests by 20%, and Dialog’s by 3%.
Innes of SPI Asset Management cautioned investors to be selective in the current environment.
“In the near term, investors should be cautious about O&G stocks. Margin pressure, earnings downgrades and sentiment risk are significant if crude trends toward US$60 a barrel,” he said.
“However, longer-term structural plays could still be viable with selective positioning.”
Yoong advised investors to wait on the sidelines until prices stabilise.
An analyst recommended sticking with quality names: “O&G is a cyclical sector. Companies with strong balance sheets and recurring income will be more resilient.”
Meanwhile, another analyst advised: “Look for names that are still growing despite the uncertainty.”
No comments:
Post a Comment