Brokers' take: DBS says oil proxies should remain in favour; raises price estimates

DBS Group Research on Tuesday raised its oil price forecasts for the next few quarters in anticipation of higher oil demand in the coming winter months due to a switch from gas for heating purposes.

The research team's 2021 Brent crude average price forecast now stands at US$67-72 per barrel (bbl) from US$65-70/bbl previously, while its 2022 forecast rises to US$70-75/bbl from US$67-72/bbl earlier.

It noted in a sector report that unlike other commodity markets like metals, the oil markets are "looking well beyond China concerns". They remain well supported by demand from other parts of the world, with global oil inventories well below five-year average levels and falling persistently month on month.

On the supply side, there are limited concerns as internal disagreements within Opec (Organization of the Petroleum Exporting Countries) have been sorted out. Hurricane-linked supply outages from the US Gulf of Mexico have also provided further support in the near term.

Thus, oil proxies should remain in favour, with DBS's top picks being China's CNOOC and Thailand's PTT Exploration & Production (PTTEP).

Shares of Hong Kong-listed CNOOC closed 5.8 per cent or HK$0.49 higher at HK$8.97 on Tuesday, while shares of Thailand-listed PTTEP closed 1.7 per cent or two baht higher at 119 baht.

"Oil and gas upstream plays have lagged the oil price recovery and stock prices are generally still lower than the early 2020 highs despite a rosier oil price outlook currently," DBS said.