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O&G sector remains precarious amid bad US weather, Saudi's quota

KUALA LUMPUR: Oil and gas(O&G) sector remains precarious amidst severe weather in the United States (US) and Saudi Arabia's quota.

AmInvestment Research noted that oil price outlook remains precarious, even though Brent crude oil prices have risen to US$64 per barrel currently versus its unchanged crude oil price forecast of US$50–US$55 per barrel for 2021 and US$55– US$60 per barrel for 2022.

This is in view of the 14 per cent drop in US crude inventories to 463 million barrels currently from the all-time high of 541 million barrels in June last year, the firm noted.

The drop was due to the unusually cold US weather in February this year, disrupting Texan production together with the Saudi Arabia's production cut of 1 million barrels per day, it said.

However, the firm said US shale production could rebound when the weather improves while the Opec+ quota may unravel given the brighter oil price environment amid weak global demand.

For comparison, the US Energy Information Administration's (EIA) short-term energy outlook currently projects Brent oil price at US$53 per barrel for 2021 and US$55 per barrel for 2022, the research firm noted.

AmInvestment Research said as for Malaysian operators, it has seen an improving prospects despite weak order flows in fourth quarter (Q4) 2020.

Excluding Serba Dinamik Holdings Bhd's huge civil and information, communication and technology (ICT) jobs in the United Arab Emirates (UAE), new contract awards in 2020 for Malaysian operators tumbled 42 per cent year-on-year (yoy) to RM6.6 billion, it said.

"However, including Serba's lumpy UAE projects, the 2020 new orders instead rose 38 per cent yoy to RM15.8 billion. New project rollouts were still sluggish in Q4 2020, as fresh jobs fell 32 per cent yoy to only RM1.5 billion. 

"Nevertheless, we note that this was still better than the three year low of RM569 million in the first quarter (Q1) 2020, which underpins our view that the worst of the Covid-19 impact is behind us amid prospects of stronger order flows in the second half of 2021," it said.

The research house maintains 'Overweight' for the O&G sector with eight 'Buy' calls versus only one 'Hold.

"We continue to like Dialog Group Bhd and Serba Dinamik Holdings due to their resilient non-cyclical tank terminal and maintenance-based operations.

"We recommend Yinson Holdings Bhd for its strong earnings growth momentum from the full-year contributions of floating production storage and offloading (FPSO) vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.

"We also like Sapura Energy, which will complete its RM10 billion debt restructuring package soon and position the formidable engineering, procurement, construction and installation (EPCIC) group to secure fresh global orders," it said.

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