KUALA LUMPUR: Geopolitical supply risk, including instability in Middle East and unrest in Venezuela, could trigger volatility in the oil market and lead to oil price potentially overshooting above US$80 per barrel, said Maybank Investment Bank (IB) Research.
Maybank IB said while the collective Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC pact to tighten oil output has been key to the recovery in oil price since November 2016, recent geopolitical supply risk could further induce volatility.
“Drawing from past events, developments in the Middle East could be a catalyst. May is an important month, for the US will decide on re-imposing sanctions on Iran.
“Also, Venezuela is a risk following Chevron’s decision to evacuate its workers there after some of its staff were imprisoned over a dispute with the government.
“This may trigger other oil companies operating there to pull out their investments,” it said.
Maybank IB said both Iran and Venezuela are OPEC members and collectively produce 5.3 million barrels per day of oil, accounting for five per cent of global output.
Crude oil price has averaged US$68 per barrel year to date, ranging from US$63 per barrel to US$75 per barrel, and ahead of Maybank IB’s average US$65 per barrel estimate for 2018.
“We do not rule out oil price sustaining at current levels, on improving fundamentals, aside from geopolitical supply risk. Global net crude supply is narrowing, while global crude oil inventories are falling and offshore storage is on the downtrend.
“These events have trumped the potential impact of increased shale supply,” it said.
Maybank IB said a rise in oil price could sentimentally excite the equity market, from a top-down perspective, across the board.
Public listed companies that are more sensitive to oil price movements such as Sapura Energy Bhd (SEB), Malaysia Marine and Heavy Engineering Holdings Bhd and UMW Oil & Gas Corporation Bhd could lead in share price gains, it said.
Maybank IB has reiterated its “positive” view for the sector with three key “buys” for Dialog Group Bhd, Yinson Holdings Bhd and SEB.