KUALA LUMPUR (Sept 1): The Bursa Malaysia Energy Index, which tracks the share prices of companies in the oil and gas (O&G) sector, dipped into the red on Thursday (Sept 1) as oil prices extended losses amidst weak market sentiment.

This is despite Petroliam Nasional Bhd (Petronas) reporting a 140% year-on-year jump in profit after tax for its second quarter of this year.

The 2.36% decline in the Energy Index was the second-highest among all indices on Bursa Malaysia, after the Plantation Index’s 2.74% drop.

At the time of writing, US West Texas Intermediate (WTI) crude oil had fallen 1.33% to US$88.35 a barrel, while Brent Crude oil had slipped 1.45% to US$94.30 a barrel.

Among the top losers were Petron Malaysia Refining & Marketing Bhd (-5.9%), Dialog Group Bhd (-5.35%) and Hengyuan Refining Company Bhd (-2.06%).

“The [decline in the Energy] Index was largely due to the crude oil price movement which has also dropped. Even though crude oil prices have doubled from the pandemic level and are 60% above the pre-pandemic level, the translation into higher rigs and support services price level has been slow.  

“This means that the biggest beneficiaries have been oil producers while many Malaysian listed rigs and support services providers like Sapura Energy Bhd, Velesto Energy Bhd and Icon Offshore Bhd did not benefit fully. Furthermore, investors are still concerned about their financial health,” TA Investment Management chief investment officer Choo Swee Kee told The Edge when contacted.

“Oil prices are high but no longer elevated. With the ongoing war between Russia-Ukraine, it is unlikely that oil prices can weaken substantially,” he added.

Another analyst who declined to be named said recession fears are also in motion to possibly push down oil prices.  

On the other hand, Thong Pak Leng, vice president of equity research at Rakuten Trade Sdn Bhd, told The Edge that Petronas’ announcement to renegotiate contracts with vendors and suppliers in light of higher oil prices will have a positive impact on energy service providers.

However, he said the effect can only be seen in the medium term.

'Overweight' call maintained

Investment analysts maintained their "overweight" stance on the O&G sector, supported by a continued recovery path in O&G activities over the coming quarters.

TA Securities Research believes oil prices will escalate as long as the war between Russia and Ukraine continues, adding that O&G projects will remain economically feasible if oil prices remain above US$70 per barrel.

“As such, we believe that upstream service providers are leveraged towards steady O&G capex momentum.”

TA maintained its assumption of a Brent crude oil price of US$90 per barrel in 2023, below the US Energy Information Administration's projection of US$98 per barrel, due to declining demand from China and lower gas-to-oil switching.

“Nevertheless, we believe a cool-down in price is healthy to avoid inflationary pressures that may ultimately derail oil demand. As such, this will enable oil price to sustain its escalated levels over the longer term,” it added.

Although Petronas expects Brent crude oil price to range between US$90 and US$95 per barrel in the second half of the year (1HFY22), Kenanga Research maintained its assumption of an average US$100-US$110 per barrel for 2022-2023.

Petronas incurred capital expenditure (capex) of RM18.9 billion in 1HFY22, a 49% increase year-on-year, reflecting a general recovery as activity levels normalise post-pandemic. That said, the research firm still believes capex spending will pick up faster in 2HFY22 in order to meet Petronas’ capex guidance of RM60 billion for the full year.

“With an anticipated further ramp-up in capex by Petronas in 2HFY22, we are expecting the upcoming quarters to see a continued recovery trajectory in local activity levels,” it added.