KUALA LUMPUR (April 5): AmBank Research has maintained its “overweight” rating on the oil and gas (O&G) sector and said the current oil price environment provides a trading opportunity for O&G companies which are exposed to the exploration and production subsegment as they will be able to command stronger selling prices.

In a sector update on Friday, the research house said its top pick is Hibiscus Petroleum Bhd ("buy", fair value [FV]: RM3.44), which is fully exposed to the subsegment through its direct interest in four production assets in Malaysia and the North Sea, UK.

The group expects total sales volume to be in line with its prior guidance of 7.7 million of barrels of oil equivalent (MMboe) in the financial year 2024 (FY2024).

AmBank said this week has seen Brent crude price beginning to test the US$90/barrel (bbl) level following heightened geopolitical risks from Ukrainian drone attacks on Russian refineries, and the airstrike, allegedly by Israel, on Iran’s consulate in Damascus, Syria.

It said that on the demand side, global consumption has been stronger than expected by the market, particularly in China, as crude oil imports rose 5.1% year-on-year during January and February.

“However, this is in line with our prior expectations in January. Meanwhile, we expect the supply side to be primarily impacted by Opec+ (the Organization of the Petroleum Exporting Countries and its allies) production cuts.

“We note that members have already vowed to commit rolling over cuts to 2QFY2024 (second quarter of FY2024) and providing compensation schedules over non-conformity in 1Q2024 (first quarter of 2024).

“This countered US production, which grew by less than expected, evident through current inventory levels which is now 2% below the five-year average,” it said.

AmBank continued to maintain its full-year 2024 oil price projection of US$85/bbl for now.

“For reference, this is slightly lower than EIA’s (Energy Information Administration) 2024 forecast which was recently raised to US$88/bbl (from US$83/bbl in its January STEO [Short-Term Energy Outlook]) on the back of Opec+ production cuts but is in line with Rystad Energy’s forecast of US$85/bbl.

“We also expect to see Dialog Group Bhd ('buy', FV: RM2.91) as a potential beneficiary due to its exposure through assets L53/48 field in Thailand and the D35, D21 and J4 production sharing contracts (PSC) in Malaysia,” it said.