The steady decline in oil prices is threatening the outlook for players in Malaysia’s oil and gas (O&G) sector, said MBSB Research.
The research house warned that given the volatility of crude oil prices, the upstream exploration and production players are “highly vulnerable” until the year end.
“This volatility is also expected to impact the oil and gas services and equipment (OGSE) players, who face a risk of reduced capex for new projects and maintenance work,” it said in its O&G sector report today.
Brent crude has fallen more than 10% this year to about US$67 (RM282) currently. In August, oil prices tumbled nearly 15% year-on-year (y-o-y) and over 3% month-on-month (m-o-m).
The US Energy Information Administration expects the Brent price to decline in coming months, falling from US$68 per barrel in August to US$59 in the fourth quarter, and around US$50 in early 2026.
The Bursa Malaysia Energy Index, which tracks 31 O&G-related stocks, fell more than 20% y-o-y in August.
MBSB said the global oil market is facing significant downward pressure on prices due to a growing supply surplus. Brent crude is forecasted to trade between US$65-US$70 per barrel for the rest of 2025 and into 2026.
“This oversupply was driven by Opec+ increasing production faster than anticipated and a robust growth of 2.2mbpd (million barrels of oil per day) from non-Opec suppliers.
“Geopolitical tensions, notably Israeli airstrikes on Qatar in early September, added another layer of risk to the market, as it could impact the balance of power and energy trade in the Middle East,” it added.
The bleak outlook for the sector comes on the heels of Petroliam Nasional Bhd’s (Petronas) substantial cut in capital expenditure (capex) in the first half of 2025.
The national oil company’s total capex in the first half stood at RM17.7 billion, down 31% year-on-year, leading to lower earnings among local OGSE companies.
Light amid the gloom
However, there are some bright spots amid the gloom permeating the industry. MBSB said the midstream division is expected to perform well due to its “resilient business model”, underpinned by the expected increase in demand for crude oil storage in the near to mid term.
Companies in this sector are largely protected from short-term price volatility through long-term, fee-based contracts, it noted.
Additionally, rising demand for liquefied natural gas (LNG), particularly in Asia, and the substantial new demand for natural gas created by the growth of power-intensive data centres are expected to be positive, it said.
MBSB is maintaining its “neutral call” for the sector, given the expectation of weakening crude oil prices in the second half of 2025 onwards.
Its top picks for the sector, with “buy” calls, are MISC Bhd (target price: RM8.13) and Dialog Group Bhd (RM2.17).
It said MISC’s diversified maritime portfolio and LNG strength, alongside Dialog’s recurring income from tank terminals, are expected to cushion volatility.
