KUALA LUMPUR:The oil and gas (O&G) industry demand recovery has remained fragile as COVID-19 new cases surge while oil supply will remain in excess going into the first half (H1) 2021 with Brent crude expected to average at US$51 per barrel next year, said MIDF Research.

In its note on the O&G Sector Outlook 2021, the research house said the surge in average daily new COVID-19 cases has brought about a fresh new set of lockdowns in several European countries which could further derail demand recovery.

The pandemic has wiped out 30 per cent of the global crude demand in the first few months of its outbreak and demand has yet to recover to the pre-COVID-19 level.

"We opine that the crude oil price will continue to trade range bound at between US$45 and US$50 per barrel in the H1 2021. For the full-year financial year 2021, we estimate the major recovery expected to take place in H2 2021, should the pandemic be well-contained worldwide and a vaccine successfully developed.

"Furthermore, as we are expecting the Organisation of the Petroleum Exporting Countries Plus allies (OPEC+) to continue restricting supplies into 2021, it will also help to stabilise oil price in the H1 2021 while demand gradually recovers to pre-COVID-19 level," it said.

Although the research firm is anticipating a recovery in demand for crude oil in the coming quarter, this will also be dependent on the foreign trade policies by the US’s new President-elect Joe Biden which will determine the trajectory of the ongoing US-China trade war which has taken a back seat post-outbreak of the COVID-19.

All in all, MIDF Research is maintaining its 'neutral' stance on the sector for the upstream and downstream sub-segments given that the sector will continue to be susceptible to the ongoing development of the pandemic.

With expected subdued exploration and production, capital expenditure spending and demand returning for oil-related products globally, it opined that the significant uptick in activities within the O&G sector can only be seen in the H2 2021.

Furthermore, both upstream oil producers and oil and gas service providers will have a big task to balance future growth as well as business sustainability while they navigate through the current adverse operating environment going into 2021.

Meanwhile, AmInvestment Bank in its O&G Sector report has maintained its 2020 oil price forecast at US$40-US$45 per barrel, and US$45-US$50 per barrel for 2021.

This is supported by US crude oil inventories 10 per cent decline to 488 million barrels currently from the all-time high of 541 million barrels in June this year.

“With Brent crude spot prices stabilising above US$40 per barrel, we believe that the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices plunged to a low of US$14 per barrel while futures inverted to an abnormal negative price due to lack of storage capacity,” it said.

AmInvestment Bank has maintained its ‘overweight’ call on the sector, with recommendations for Yinson, Petronas Gas, Dialog Group, Serba Dinamik Holdings and Bumi Armada. 

-- BERNAMA