OPEC+ to continue cutting oil production targets in Q3?

 KUALA LUMPUR 21 July - Organization of Petroleum Exporting Countries (OPEC+) is expected to continue its 9.7mbpd production cut target into third quarter this year to support oil prices.

As lockdown of COVID-19 measures re-emerged, the oil and gas industry would face slower demand recovery.

Therefore, Hong Leong Investment Bank (HLIB) Research analyst, Low Jin Wu estimates the crude oil prices to trade sideways from June’s average price in the third quarter 2020. 

“While compliance was only 85% in May and about 90% in June, we believe that OPEC+’s compliance will be higher going into July and August despite its plans to reduce production cuts by two million to 7.7 million bpd from August onwards, which would bring the oil market closer to equilibrium.

"Furthermore, a decline in US production on the closure of shale rigs would also act as impetus for the oil market to reach equilibrium,” said him. 

However, he expects oil prices will be closer to equilibrium in the fourth quarter of 2020.

“We believe that oil prices will be closer to equilibrium in the fourth quarter 2020 and we expect Brent crude oil to average at US$55 (RM234.44)/bbl in 2021 as we expect a more balanced oil market then,” he said.

Locally, Petronas Chemicals Group Bhd (PetChem) surpassed its near-term fundamentals by dint of most products significantly priced below compared to the start of the year. 

In terms of share price, HLIB Research marked Bumi Armada Berhad as its top pick with 'buy' rating and a target price of 41 sen. 

It is based on 10.3 times financial year 2020 earnings per share for a stable and strong floating production storage and offloading (FPSO) earnings contribution (over 80% of revenue) and its undemanding valuations.

“Overall, we expect demand from most countries which are in their recovery stage to recover, and this will mitigate potential loss of demand from nations severely affected by the pandemic,” Jin Wu added.  - DagangNews.com