Opec+ production cuts expected to support regional oil and gas sector

THE Opec+ cartel's decision to cut oil output has kept analysts conservative on their crude price forecasts, but still confident in regional oil and gas (O&G) stocks.

The group, which includes Organisation of the Petroleum Exporting Countries (Opec) members and other oil producers such as Russia, agreed on Dec 7 to slash their output by 1.2 million barrels per day (mmbpd) - more than watchers had expected.

Researchers from DBS noted that upstream oil and gas stocks' prices have fallen by 15 per cent to 30 per cent in the past two months, amid fears of a slowdown in demand.

"The Opec deal is a relief to the oil market, and this will likely lift the sentiment on O&G players," the DBS analysts wrote in a report on Monday (Dec 10). "We expect O&G stocks to rebound, particularly the upstream exploration and production (E&P) players, as oil price recovers.

"O&G service providers are likely to get an uplift as well, as upstream E&P players will likely be more confident and comfortable when finalising their capex budgets for 2019."

Separately, Maybank analyst Liaw Thong Jung has held to a "positive" rating for Malaysia's oil and gas sector, but warned: "It appears that the cartel's influence as a swing producer is gradually waning and could be on the verge of an implosion."

Disciplined execution and compliance with the terms of the oil production deal will be key to "a more supportive oil price outlook for 2019", Mr Liaw added.

The DBS analysts, meanwhile, expect oil price volatility to persist, with Brent's resurgence to last for at least the last weeks of 2018.

"While certain countries like Russia will take time to roll out production cuts, Saudi Arabia's proposed production quantity suggests a substantial reduction of around 0.8mmbpd between November and January, which buys valuable time for the coalition to throttle production," they added.