O&G sector to recover in 4Q17

Ayisy YusofMonday, March 20, 2017
The company plans to reduce RM50b from its cost structure for a period of 4 years starting in 2016 (Pic: Bloomberg)

Global oil price is expected to trade between US$70 and US$100 (RM443.80) per barrel by the fourth-quarter of this year (4Q17), said IQI Holdings Malaysia chief economist Shan Saeed.

He said global oil consumption would reach 96 million barrels per day from the current 95 million barrels per day.

“Oil demand in Asean and China is growing rapidly. Bankruptcy in energy companies in North America, especially the Alberta Oil Sands, the US dollar weakening in the future and the one or two production cuts by OPEC this year, will determine oil price,” he told The Malaysian Reserve (TMR).

Shan said oil demand continues to be rising following supply shortage in the global market and if the OPEC cuts its production this year.

OPEC supplies 40% of the global oil demand and any action by the cartel will affect prices.

Shan said the OPEC’s production cut was a rare event. “Generally, oil prices would soar after these production cuts. A 31.5% gain from the production cut means oil prices, would hit US$70 sometime by 3Q17.

“And a 41% two-year gain would put oil around US$75 per barrel. A US$70 a barrel price, which is about three times higher compared to the price in January 2016, can be very much on the cards. It is very possible, based on historical data,” he said.

Industry players are predicting oil prices to trade between US$60 and US$65 per barrel.

While optimism is high for a turnaround in oil prices, national energy firm Petroliam Nasional Bhd (Petronas) had only pegged its budget to a modest US$45 a barrel for this year.

Shan said most oil companies are prepared to face the market uncertainty this year by slashing their capital expenditure (capex).

“It is important for oil and gas (O&G) companies to spend prudently as their capex is worth billions,” he added.

Petronas planned to reduce RM50 billion from its cost structure for a period of four years starting in 2016.

Shan said oil companies should invest in human capital and productivity during this consolidation period.

“Companies must maintain a higher cashflow and reduce expenses in a strategic manner that does not hurt the employees and capex operation,” he said.

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