According to New Straits Times article published on January 3, 2023, Malaysia's oil and gas sector enjoyed one of its best performances in 2022, thanks to higher oil prices especially in the initial months.
National oil company Petronas in particular is on track to meet its RM100 billion earnings target for financial year 2022 as geopolitical factors such as the war between Russia and Ukraine led to a spike in oil prices to more than US$120 per barrel in March.
This was way higher than the levels traded at the start of the year which were around US$80 per barrel. Oil prices subsequently softened towards the end of 2022.
The war that sent shockwaves globally had caused Western nations to ban imports of Russian oil and gas, which had oil prices soaring.
The United States had banned imports of oil and gas following Russia's invasion in Ukraine, while the United Kingdom announced plans to phase out Russian oil imports by the end of last year.
The tight supply situation caused by the war was further compressed after the Organisation of the Petroleum Exporting Countries announced its decision to reduce production by 100,000 barrels per day (bpd), against its earlier pledge to raise it by 275,000 bpd.
The geopolitical factors had an effect on Malaysia's O&G listed firms, as reflected in the Bursa Energy Index this year.
Based on data from Bursa Malaysia, the energy index traded at its highest in May at 864.15 points following higher crude prices.
It dipped to its lowest level at 604.64 in mid-July as recession concerns heightened due to interest rate hikes imposed globally to curb inflation.
Despite the challenges, Asia School of Business assistant professor Dr Renato Lima de Oliveira said it had been quite a good year for O&G companies.
Companies have been taking profits with the rebound of economic activity in key markets coupled with supply disruption from the Russia-Ukraine war.
However, he noted that investors might anticipate a more challenging year for the sector in 2023 which would lead to some stock selloff.
"Economic activity will slow down as a result of the continuous interest rates increase to tame inflation, led by the US Federal Reserve. We have seen stronger signs that a recession will come, and with lower economic activity, less O&G will be consumed to manufacture and transport goods, for example," he told the New Straits Times.
He added that the International Energy Agency, in its latest report, had pointed to signs of a demand contraction in for crude oil in the fourth quarter of last year, which explained the decline in price of the Brent and WTI crudes.
"Nonetheless, demand for liquefied natural gas is quite high as Europe replaces Russian sources of energy and will continue to do so, so we are likely to see that commodity quite hot for 2023," he said.
Furthermore, local O&G players are poised to benefit from the rise in domestic capital expenditure by Petronas.
Maybank Investment Bank Bhd said in its report last month that a 34 per cent year-on-year increase in Petronas' domestic capex would benefit companies such as Yinson Holdings Bhd, Dialog Group Bhd and Hibiscus Petroleum Bhd.
It gave a "Buy" call on its small and mid-cap companies namely Bumi Armada Bhd, Velesto Energy Bhd, Wah Seong Corp Bhd and Malaysian Marine & Heavy Engineering Holdings Bhd.
Maybank IB said Petronas was on track to meet its RM100 billion earnings target for 2022 after posting a 173 per cent year-on-year surge in nine-month core net profit to RM72 billion.
As 2022 closed down its curtains, Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff said the volatility of crude oil prices would spill into early this year.
"Although there have been recessionary fears and inventory buildup, the winter season in Europe and the United States will further increase demand. This would also be affected by the ongoing Russia-Ukraine crisis," he told the NST.
Share prices of O&G players are expected to remain unstable, also due to the geopolitical factors and global drive towards advocating electric vehicles.
"Therefore, next year will see more measured capex decisions by major players," added Razman.
Public Investment Bank Bhd (PublicInvest) said while the European Union (EU) price cap was unlikely to have a notable effect on Russian oil supply, focus in 2023 would be more on keeping Russia's crude oil flowing and preventing a plunge in global oil supply and another price spike.
In this case, all eyes will be on China and India to drive demand.
"The EU's oil embargo towards Russian oil could raise oil prices should there be any supply disruptions. However, we do not see much upside to the current levels.
"We think oil prices staying above US$100 a barrel would be rather short-lived and would be unsettled by fears of some supply disruption or geopolitical issues as Russia could easily phase out the remaining barrels to other buyers at a discounted price.
"All in all, we are now neutral on the sector with average oil price expected to be around US$90 a barrel," PublicInvest said.
