KUALA LUMPUR (Oct 6): Malaysia will cut its daily crude oil output by 27,000 barrels to 567,000, under a planned collective production reduction by two million barrels a day by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to enhance the long-term guidance for the oil market.
“In light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive and pre-emptive, which has been consistently adopted by OPEC and non-OPEC participating countries in the declaration of cooperation, the participating countries have decided to adjust downwards overall production by two million barrels a day from August 2022’s required production levels, starting from November for OPEC and non-OPEC participating countries,” OPEC said in a statement on Wednesday (Oct 5) evening.
Malaysia is one of the 10 non-OPEC participating countries, which also include Azerbaijan, Bahrain, Brunei, Kazakhstan, Mexico, Oman, Russia, Sudan and South Sudan.
Meanwhile, the 10 OPEC members comprise Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iraq, Kuwait, Nigeria, Saudi Arabia and the United Arab Emirates.
OPEC said OPEC+’s planned crude oil output cut by two million barrels a day will start in November 2022 and is scheduled to end in December 2023.
According to OPEC, OPEC+’s August 2022 required crude oil production stood at 43.86 million barrels a day and after taking into account the proposed two million barrels a day voluntary output cut, OPEC+’s daily voluntary crude oil production will come to 41.86 million barrels.
On Thursday (Oct 6), TA Securities Holdings Bhd analyst Kylie Chan Sze Zan wrote in a note that TA believes OPEC+’s decision will bode well for crude oil prices.
“We believe OPEC+’s decision would bode well for oil price and cushion downside risks. The group’s solidarity sends a strong signal and boosts market sentiment.
“In particular, we believe this decision would augur well for OPEC+’s key member and co-chair, Russia. Evidently, strong oil prices are beneficial for the latter, which is still engaged in war with Ukraine.
“In the interest of this, we believe that OPEC+ will likely continue its trajectory of formulating production policy that propels oil price,” Chan said.
It was reported that oil prices stabilised near three-week highs on Thursday, after OPEC+ agreed to further tighten global crude supply with a deal to slash production by about two million barrel per day, the largest reduction since 2020.
“Brent crude futures for December settlement edged down 8 cents to US$93.29 per barrel by 0656 GMT, after settling 1.7% higher in the previous session. US West Texas Intermediate (WTI) crude futures for November delivery slid 15 cents to US$87.61 per barrel, building on a 1.4% rise on Tuesday,” Reuters reported.
ING analysts were quoted as saying in a note that “this latest action from OPEC+ suggests that there is upside to our current full year 2023 forecast of US$97/barrel”.
Chan said TA is maintaining its 2022 and 2023 Brent crude oil price assumptions of US$105/barrel and US$90/barrel respectively.
“Against this backdrop of resilient and heightened oil price, we are ‘overweight’ on the (Malaysian oil and gas) sector,” she said.
The overweight-sector-recommendation-based TA’s guideline indicates that the industry, as per TA’s coverage, is expected to outperform the FBM KLCI over the next 12 months.
“We believe that upstream service providers are leveraged towards steady oil and gas capital expenditure (capex) momentum. For the latter, we expect a recovery in daily charter rates, fleet utilisation and new contract awards.
“The impetus is higher capex spend from Petronas (Petroliam Nasional Bhd) and other oil companies in these areas: expansion projects, well drilling, production enhancement, and platform and facilities maintenance, etc,” Chan said.
She said TA’s Malaysian oil and gas sector coverage includes companies like Petronas Chemicals Group Bhd, MISC Bhd and Velesto Energy Bhd.
On Petronas Chemicals’ shares, Chan said TA has a target price (TP) of RM9.19 and “hold” call for the stock.
TA has a TP of RM7.10 and “hold” recommendation for MISC, besides a TP of 10 sen and “buy” call for Velesto, she said.
At Bursa Malaysia on Thursday, Petronas Chemicals’ share price was unchanged at RM8.65 at about 3:50pm, MISC rose six sen or 0.86% to RM7.06, while Velesto was also unchanged at 12 sen.
Petronas Chemicals and MISC, which are members of the 30-stock KLCI, are also components of Bursa’s Energy Index, which tracks share prices of oil and gas companies.
The KLCI rose 3.79 points or 0.27% to 1,424.34 at about 3:50pm on Thursday, while the energy gauge climbed 4.86 points or 0.7% to 698.96.
Meanwhile, higher crude oil prices are also expected to bode well for the ringgit due to Malaysia’s status as a net exporter of crude oil, according to fund managers.
SPI Asset Management managing partner Stephen Innes wrote in a note on Thursday that while the crude oil price upside is a significant headwind for most Asian currencies, the ringgit is however “the exception”.
At the time of writing, the ringgit was traded at 4.6335 against the US dollar.
Over the last one year, the exchange rate was between 4.1392 and 4.6512.