KUALA LUMPUR (July 13): Pressures on crude oil prices will persist but will eventually balance out at around the US$50 per barrel (bbl) levels, according to PublicInvest Research.
In its sector update note today, the research house sees that at US$50 per barrel, major oil companies can initiate a restart to their capex plans, considering the lower cost of production and better efficiencies attained in recent times.
PublicInvest said the estimation was made based on its analysis of WTI and Brent’s futures trades.
“OPEC’s deeper cuts will tighten the medium sour market further, but would have diminished effects on global oil prices which are seemingly more closely-linked to light oil varieties,” PublicInvest said.
The research house noted OPEC produces a heavier and sourer form of oil, while US, Nigeria and Libya’s are light and sweet.
“The fundamental difference is therefore leading to a tighter supply condition situation of the medium sour market, while a glut remains for the light sweet market based on S&P Global Platts,” PublicInvest added.
However, PublicInvest suggests OPEC is in a conundrum between fighting for market share by raising production or stabilising prices by maintaining cuts.
“Attempts to curb US shale out of the market have had muted effects, though it has somewhat rescued oil prices from falling. Now, OPEC needs to choose one course of action, otherwise they are looking at longer-term erosion from lost market share and less favourable revenues,” it explains.
PublicInvest remains "Overweight" on the sector.
“We opine the industry is more focused on robust activity at stable oil prices, rather than very high oil prices at this juncture, which is not sustainable,” it said.