KUALA LUMPUR: MBSB Investment Bank Bhd has continued to maintain a “neutral” stance on the oil and gas (O&G) sector, reflecting a still-challenging macroeconomic backdrop based on the recent geopolitical developments in the Strait of Hormuz.
In a note today, MBSB said this outlook reinforces its view that crude oil prices are likely to remain depressed, as the market continues to grapple with a structural surplus of crude supply, which is expected to cap sustained upside despite intermittent geopolitics-driven price movements.
It said Iran’s temporary closure of selected sections of the Strait of Hormuz, alongside live-fire military exercises, marks a rare escalation in its approach to a key global energy artery, though the action was limited in duration and scope.
“While Iran’s actions underscore the latent geopolitical risk embedded in global energy markets, the current incident appears tactical rather than structural.
“Unless disruptions to the Strait of Hormuz become sustained or escalate into direct military confrontation, the impact is expected to remain short-lived, consistent with prior geopolitical flare-ups observed in recent years,” the investment bank said.
It said amid escalating tensions in the Middle East, Brent crude futures moved decisively higher, briefly surpassing the US$70 (US$1=RM3.90) per barrel level, while the upward momentum in crude prices has been further supported by prolonged negotiations between the United States and Iran over a potential nuclear agreement.
This have contributed to heightened uncertainty around future supply dynamics and reinforced a geopolitical risk premium in the oil market, MBSB said.
“That said, despite the recent uptick in crude prices, the broader trend indicates that oil remains range-bound, largely trading within the USD60-USD70 (RM234-RM275) per barrel band.
“While prices have strengthened on renewed geopolitical concerns, it continues to sit well below the one-year high of USD82.03 (RM321) per barrel, suggesting that the current move reflects a risk premium rather than a structural shift in underlying supply-demand fundamentals,” it added.
MBSB said its top pick for the sector remains Dialog Group Bhd due to its defensive midstream exposure, anchored by its extensive tank terminal and infrastructure assets.
“The group’s earnings profile is largely underpinned by long-term take-or-pay contracts and lease arrangements, providing stable and recurring cash flows that are largely insulated from short-term crude price volatility,” it said. – BERNAMA
