Oil prices capped despite geopolitical conflict

PETALING JAYA: Any further upside to the price premium of crude oil prices fuelled by the Iran-Israel conflict is constrained by ample spare capacity among Organisation of the Petroleum Exporting Countries and its members (Opec) members as well as non-Opec suppliers, TA Research states in its oil and gas (O&G) sector report.

It said global demand for energy also remains weaker due to slower economic activity and the increased use of electric vehicles.

The research house added the geopolitical premium put on crude oil prices since the conflict erupted is more likely to be transient rather than transformative.

“The global oil supply backdrop remains relatively resilient despite the geopolitical turmoil. Opec, led by Saudi Arabia, holds sufficient spare production capacity to offset most short term disruptions from Iran,” it stated.

TA Research added US shale producers continue to deliver robust output levels, averaging a steady 13.4 million barrels per day while other non-Opec producers like Brazil, Canada, and Guyana are also ramping up supply, contributing to a broader narrative of a well-supplied global market.

While supply-side fears can generate temporary price rallies, the demand picture remains insufficiently supportive for a sustained oil bull cycle without further macroeconomic improvement, TA Research opined.

“While the war may add volatility, the probability of a sustained supply shock remains relatively low unless additional producers or infrastructure become targets,” it summarised.

Hence, TA Research has maintained its average Brent crude oil price forecast of US$73 a barrel for 2025.

“We retain our ‘neutral’ view on the O&G sector, as we believe the risk-reward balance remains evenly poised.

“We reiterate our preference for oil and gas players with strong export linkages and robust cash generation, such as Pantech Group Holdings Bhd and MISC Bhd,” the research house noted.

It explained that MISC (“buy”, target price: RM8.40) stands to benefit from increased demand for tanker freight and floating solutions, particularly as shipping markets remain volatile.

Additionally, Pantech (“buy”, target price: 96 sen), meanwhile, is well placed to ride on higher project flows for pipeline and industrial fittings, driven by infrastructure upgrades and intensified maintenance cycles in response to supply chain vulnerabilities.

That said, TA Research said should diplomacy prevail and the war drums go quiet, it forecasts crude oil prices to correct to US$60 to US$65 a barrel level for the Brent contract.

Furthermore, should there be complications in the Straits of Hormuz which disrupt supply lines out of the region, prices could spike to US$100 to US$120 a barrel levels.