Analysis: Upstream O&G sees confidence amidst tariff market jitters
KUCHING (March 19): The ongoing global trade tariff tussle is set to have its negative implications on the oil and gas sector (O&G), but pockets of opportunity arise for the upstream sector.
The global upstream O&G division is currently seeing cautious investments due to the geopolitical tensions and economic uncertainties, amplified by the expected increased production that could overthrow the oil and gas supply-demand balance, and the US trade tariffs.
However, sanctions and OPEC+ intervention are expected to reduce the volatility in the oil market, while significant discoveries in the African continent are expected to keep the upstream stable.
Meanwhile in Malaysia, upstream saw a renewed interest from investors, in tandem with the recent discoveries of 1bboe of new resources which is expected to contribute to Malaysia’s production targets.
The team at MIDF Amanah Investment Bank Bhd (MIDF Research) saw that ongoing advancements in artificial intelligence technology for upstream activities and higher demand for oil and gas services and equipment (OGSE) are anticipated to support the division moving forward.
While the US trade tariffs are still not in full swing, analysts generally noted that they would negatively impact the O&G sector in terms of supply chain disruptions from higher raw material costs, subsequently increasing operational costs.
“Meanwhile, regionally and locally, we expect that the tariffs would reduce demand for petroleum products, particularly from China, consequently impacting the midstream and downstream divisions,” it said yesterday.
“Nevertheless, we anticipate that a trade balance would follow suit, given Malaysia’s position as a neutral trade partner.
“All in all, we maintain our optimism in the sector, particularly in the upstream division, with a more cautious outlook for midstream and downstream divisions.”
The research house reiterated its expectation that Malaysia’s OGSE companies would continue to benefit from the new and ongoing upstream activities, as well as decarbonisation, renewables and clean energy solutions.
In the near term, it expect the market to keep an eye on the trade tariffs and energy policies, which would highly impact the midstream (transportation and storage) and downstream.
“We remain cautious on the possible impact of the global economic changes and its impact on the operations of the oil and gas sector, particularly within the ASEAN region and in our local front.”
To note, total FY24 revenue from the local energy sector amounted to RM106.8 billion, attributable to the increased activities in the upstream and part of the midstream, while earnings added up to RM4.6 billion despite the mixed results.
This could signal that the sector’s earnings are still resilient coming into 2025.
-Agency
