The oil and gas sector continues to maintain a positive outlook, buoyed by robust upstream activities and strong demand, despite ongoing volatility in global markets. July 2024 saw a notable rise in Brent crude oil prices, alongside a dip in natural gas prices, reflecting the complex dynamics currently shaping the energy landscape.
In July 2024, Brent crude oil prices averaged USD83.01 per barrel, marking a 4.6% year-on-year increase and a 2.1% rise from the previous year's average. This upward movement was driven by several factors, including extended OPEC+ production cuts, escalating conflicts in the Middle East, a decrease in global oil inventories, and heightened summer demand.
Conversely, Henry Hub natural gas prices fell by 13.2% year-on-year to USD2.22 per MMBtu, driven by oversupply, higher inventory levels, and reduced demand due to milder summer temperatures. The decline was further exacerbated by a relatively flat production rate.
The KL Energy Index (KLEN) continued its upward trajectory, gaining 14.9% year-on-year in July 2024, supported by strong performances in the energy sector and elevated oil prices. However, the index remains vulnerable to geopolitical risks and potential interest rate cuts in the US, which could increase market volatility. Despite these challenges, the sector is expected to benefit from ongoing developments in carbon capture and storage (CCS) and biofuel projects. These initiatives are likely to see further advancements in the near future, reflecting the industry's commitment to sustainability and innovation.
Among the companies in focus, MISC Bhd and Dialog Group Bhd stand out as strong performers. MISC Bhd, which maintains a 'Buy' rating with a target price of RM9.75, reported resilient earnings in 1QFY24, driven by robust tanker rates and long-term contractual stability. The company also shows high potential in the LCO2C shipbuild and operations for CCS.
Dialog Group Bhd, also rated 'Buy' with a target price of RM2.72, demonstrated a strong performance in 3QFY24, supported by its integrated operations and strategic investments in upstream assets and renewable products. The company's shareholder equity return remains strong at 10%.
Positive results are anticipated for the upstream oil and gas division in 2QFY24/1HFY24, particularly for Oil and Gas Services and Equipment (OGSE) companies. Notably, Halliburton, Baker Hughes, and Schlumberger reported year-on-year earnings gains, reflecting the sector's resilience. However, major oil companies like ExxonMobil, BP, and Chevron experienced declines in 1HFY24 profits due to lower margins on refined product sales and decreased natural gas realisations. Despite these setbacks, upstream operations remained strong, underpinned by higher crude sales and production.