The price of Brent crude oil is projected to rise between US$69 and US$71 for 2021-2022 from the US$65-US$68 per barrel estimated earlier, fuelled by optimism over oil demand recovery as well as the commitment by Organization of the Petroleum Exporting Countries and allies (OPEC+) to balance the market, said RHB Research.
“Global crude oil demand is now expected to increase by 4.2 million barrels per day (mbpd) to 100.8 mbpd, similar to the pre-pandemic levels in 2022 (from the 6 mbpd in 2021).
“The continuous inventory drawdown would also suggest that the impact of the COVID-19 Delta variant could be milder than initially expected. Based on the current oil production agreement, the remaining 3.65 mbpd production cut will be fully resumed by September 2022,” the research house said in a note today.
RHB said its numbers still point to a gradual moderation of prices going by the 2022 forecast, as the market would then enter into a surplus of 2.0 mbpd that year if demand follows OPEC’s latest projection.
The research house even sees an increased possibility of the price of oil hitting US$100.00 per barrel, but stronger catalysts are required to propel it. The demand upside surprise would be the key factor that could lift oil prices to another level.
“US production is expected to grow by 0.6 mbpd or six per cent to 11.7 mbpd in 2022, and higher prices will trigger more funds to accelerate drilling. Iran remains a big swing factor, as it is still seeking to recover lost ground due to the imposition of international sanctions in recent years.
“Lastly, demand destruction – more apparent in Organisation for Economic Cooperation and Development (OECD) countries – could also cap the price upside,” it said.
The research house has an “overweight” call on the oil and gas sector and expects that exploration and production and petrochemical companies to continue enjoying a strong recovery in earnings in 2021, riding on better commodity prices. Services providers should gradually benefit from higher domestic capex allocations, it said.
RHB’s top picks are MISC, Petronas Chemicals, Bumi Armada, PTT and PTT Exploration & Production (PTTEP).