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Energy Index declines amid recession fears, supply constraints

04/07/2022 12:40 PM

KUALA LUMPUR, July 4 (Bernama) -- The Energy Index, which tracks oil and gas companies’ share prices on Bursa Malaysia, declined in the morning session today amid recession fears as well as supply constraints due to lower output from the Organisation of the Petroleum Exporting Countries (OPEC) and sanctions on Russia. 

As at 11.52 am, the index shed 5.88 points or 0.86 per cent to 678.60. 

Meanwhile, Petron Malaysia Refining & Marketing as well as Hengyuan Refining Company Bhd were among the top losers, declining 13 sen to RM5.40 and 12 sen to RM4.53, respectively.  

In its research note today, RHB Research increased its Brent crude oil price forecast to US$108 per barrel from US$104 per barrel while keeping its 2023-2024 projections at US$85 per barrel and US$75 per barrel, respectively.

The research firm expected oil prices to average at US$110 per barrel in the third quarter of 2022 and moderate to US$105 per barrel in the fourth quarter this year, reflecting the continuously tight supply market in the near term, evidenced by low inventory levels as well as OPEC and its partners (OPEC+) not meeting the production quota.

"That said, we would like to stay conservative, with a relatively lower year-on-year projection in 2023 and 2024 at US$85 per barrel and US$75 per barrel. This is largely premised on a gradual increase in global supply and the higher possibility of an economic slowdown,”  it added. 

At the recent 30th OPEC and non-OPEC Ministerial Meeting, OPEC+ reconfirmed its pledge to raise production by 648,000 barrels per day in August, as what had been agreed upon in the previous meeting.

"Overall, we believe OPEC is likely to stay intact but supply (in the) market is likely to stay tight as evident by the widening gap between OPEC+ output and its target levels to 2.7 million barrels per day (mbpd) in May. OPEC-10’s total production stood at 24.5 mbpd in May, or 1.05 mbpd lower than the production quota,” said RHB Research.

Recently, JPMorgan warned that the global oil prices could reach US$380 per barrel if penalties imposed by the United States and European Union (EU) would prompt Russia to retaliate with crude output cuts.  

The EU will ban seaborne imports of Russian crude oil starting December this year, and ban petroleum product imports by February 2023.

RHB Research said the impact could be partially cushioned by stronger take-up rates from China and India leveraging on the discounted prices.

It was reported that China ramped up crude oil imports from Russia by 55 per cent year-on-year to 8.4 tonnes (equivalent to 1.98 mbpd) in May, while Indian refiners bought 25 million barrels of Russian oil in the same month.

"Such a trend is expected to continue, and we do not discount the possibility of Russian oil being re-routed to Europe via India,” said RHB Research. 


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