KUALA LUMPUR: Activities in the local upstream oil and gas (O&G) sector are expected to remain robust this year, according to RHB Research.

The firm said oil prices were projected to average at US$88 per barrel (bbl) this year and this will continue to encourage oil companies to maintain capital expenditure (capex) and operational expenditure (opex) plans. 

It added that the prospect would be a boon to upstream services players such as Yinson Holdings Bhd, Dayang Enterprise Holdings Bhd and Coastal Contracts Bhd. 

"For Malaysia, the overall expectations of upstream activities by service providers remain fairly robust.

"There could also be an upward revision of rates for new contracts, to cater for the rising cost of materials. 

"That said, we believe margins will not be able to return to pre-pandemic levels amidst rising cost pressures that include higher logistics and equipment costs," it said.

RHB Research has lowered its Brent crude oil price forecast for the first quarter (Q1) of 2023 to US$ 85 per bbl as it believes it will take some time before the impact of China's reopening of borders can be felt, although this should garner momentum in Q2 to Q3 2023. 

The firm assumes overall demand to still be healthy this year, registering a positive growth of 2.2 thousand barrels per day (mbpd), premised on a no-global recession scenario. 

"We acknowledge the fact that, apart from global economic uncertainties, there is also an increased disruption in the supply side following the commencement of the Europe Union embargo on Russian oil and the implementation of a price cap. 

"For now, we may see a sudden decline in crude oil exports but there should eventually be a re-routing to other countries as time goes by – premised on the assumption that overall global demand will still be largely unaffected."

The firm maintained "Overweight" on the local sector, with its top picks being Bumi Armada Bhd, Dayang Enterprise and Yinson.

Regionally, its favourites are Bangchak Corp Public Co Ltd and PTT Oil and Retail Business.