KUALA LUMPUR: The recently-elected 47th US President Donald Trump is expected to advance his commitment to expand domestic oil production.
This will signal a substantial shift in the US energy policy aimed at reducing inflation, said Public Investment Bank Bhd (PublicInvest).
The firm noted that deregulation and tax cuts are expected to incentivise oil producers to increase output from 13.5 million barrels per day, although likely not at the rapid pace seen from 2020 to 2024.
"The president has also pledged to resolve the Ukraine-Russia conflict, potentially easing sanctions and allowing Urals oil re-enter the conventional market," it said in a note today.
On the demand side, PublicInvest said China's crude oil imports have declined for sixth consecutive months on year-on-year (YoY) basis.
This followed the shutdown of major oil refineries duel to overcapacity and weakened fuel demand.
The firm added that so far, Organisation of the Petroleum Exporting Countries (OPEC+) is expected to continue supporting oil prices by delaying planned production increases.
"However, this could reduce its market share in the long run against US oil supply, potentially lead to price war as OPEC+ attempts to regain market share, in extreme case.
"Given these factors, we expect Brent crude oil prices to trade within a range of US$60 to US$80 per barrel, averaging US$70 per barrel for the year 2025," it noted.
Consequently, PublicInvest expects Petroliam Nasional Bhd (Petronas) to adopt more cautious approach regarding future capital expenditure by deferring high risk investment to preserve cash flow.
The firm maintained a "Neutral" call on the oil and gas sector, with a bias towards a lower valuation.
"We believe the bearish sentiment would persist in 2025, in view of the on-going structural decline in global demand with China's aggressive adoption of electric vehicles while global supply remains abundant.
"Though we see limited downside risk given the depressed valuation, we do not see any major re-rating catalyst in the near term," it said.