Better resilience seen for FPSO players

PETALING JAYA: With limited upside in crude oil prices, RHB Research says it prefers floating production storage and offloading (FPSO) players and maintenance-related players with better earnings resilience.

It said FPSO players are likely to have relatively lower earnings risks under fixed and firm long-term charter contracts.

“We believe clients would not cancel these FPSO contracts due to the fluctuation in oil prices, since these contracts are backed by compensation clauses,” the research house noted.

Meanwhile, it said under the current crude price contango, crude storage demand is likely to increase as more traders are buying more crude oil. This may benefit independent tank terminal players and tanker owners to store oil onshore and offshore temporarily,” the brokerage said.

Contango is when the futures price of a commodity is higher than the spot price. This indicates that investors are willing to pay more for the commodity in the future. Contango is often the result of carrying costs and bullish sentiment about future prices.

RHB Research said it is maintaining its “neutral” stance on the regional oil and gas sector and its top picks, among others, are Bumi Armada Bhd, Yinson Holdings Bhd, and MISC Bhd in Malaysia.

It said although the domestic petrochemical companies do not have significant presence in the United States, the brokerage remains cautious over the global petrochemical demand following the revision in the global economic condition.

“A slowdown in global economic activities will add pressure towards petrochemical prices. This is despite the lowering in crude prices could translate into lower feedstock prices for naphtha-based producers,” it said.

The research house is downgrading its Brent crude oil forecast for 2025 and 2026 at US$70 per barrel and US$68 per barrel.

“We believe the current oil market has reflected in our base case scenarios, with its theoretical deficit narrowing from 1.4 million barrels per day (mbpd) in 2024 to 0.4 mbpd in 2025.

“Our in-house economists have pencilled a hefty 40% probability to our bad case scenario given policy uncertainties and subsequent retaliation risks. This scenario suggests that there is no reprieve in risk appetite.

“China’s threat to dump US treasuries and limit rare earth exports may spike US borrowing costs, negatively impacting US defence systems, and potentially triggering a global financial recession. As such, oil prices will trend towards US$40 per barell,” RHB Research said.

However, it also believes that the Organisation of the Petroleum Exporting Countries and its allies will step in to support the oil market under such circumstances by further delaying its production ramp up programme and resuming production cut mode when necessary.