KUALA LUMPUR, April 13\u00a0 – Kenanga Research has maintained a ‘neutral’ call on the oil and gas (O&G)\u00a0sector after the Organisation of the Petroleum Exporting Countries (OPEC) meeting last week.<\/p>\n
In a research note today, it said the OPEC and its coalition had finally agreed to cut production by 10 million barrels per\u00a0day (bpd) in May and June 2020.<\/p>\n
“This will be gradually eased to eight million bpd in July to December 2020, and then further relaxed to six million\u00a0bpd from\u00a0January 2021 to April 2022,” it said.<\/p>\n
The research house said despite the cuts, crude oil prices failed to rally despite a mini uptrend leading up to the\u00a0production cut announcement, as the market deems the cuts to be insufficient in counteracting the drop in demand amidst\u00a0the COVID-19 pandemic.<\/p>\n<\/div>\n
It said the\u00a010 million bpd cut represents 10 per cent of global supply, but the widespread COVID-19 pandemic is\u00a0expected to remove roughly between 15 million and\u00a035 million bpd in demand for the second quarter of 2020.<\/p>\n
As at March 2020, oil demand has fallen 13 per cent from Dec 2019 levels, with market oversupply at a record\u00a0high of 10 million\u00a0bpd, according to the\u00a0Energy Information Administration’s\u00a0data.<\/p>\n<\/div>\n
According to the research house, this is expected to escalate in April 2020 with market oversupply potentially\u00a0jumping by 50 per cent in the coming month.<\/p>\n<\/div>\n
The cuts could be further increased to 15 million bpd\u00a0should other nations such as\u00a0the United States, Canada and Mexico choose to opt in, although this has still yet to be finalised into any official agreements.<\/p>\n
“Ultimately, we feel that the current oil production cuts put in place could be sufficient to temporarily halt oil\u00a0prices from going into a free fall, but it is unquestionably insufficient to prop up Brent crude prices to a \u2018normalised\u2019\u00a0US$50-65 per barrel level as before.<\/p>\n<\/div>\n
“As such, we feel that some form\u00a0of price correction could still be inevitable in the coming months, and an output cut\u00a0of at least 20 million bpd is required before we can see any impactful effects from deliberate rebalancing efforts.<\/p>\n
“We keep our 2020 average Brent crude price assumption of US$40 per barrel unchanged (versus year-to-date\u00a0average of\u00a0US$49 per barrel), still anticipating a subdued second quarter of 2020, barring any changes in the macro environment,” it said.<\/p>\n
Meanwhile, Kenanga Reseach said another video conference will be held to reassess the market situation in June\u00a02020.<\/p>\n
It said the recent OPEC\u00a0virtual meeting was a much more successful one\u00a0compared to its previous meeting in March 2020, where the\u00a0coalition failed to settle on a production cut agreement, sparking an all-out price war and sending oil prices into a free fall\u00a0towards its 18-year low.<\/p>\n
– BERNAMA<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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