Maybank KE raises crude estimates on likely demand pick-up, tighter supply

MAYBANK Kim Eng (Maybank KE) is raising its in-house crude oil price estimates for 2021 and 2022 to US$70 and US$75-80 per barrel, respectively, versus US$69 in the year to date and its former US$65 per barrel estimate for 2022.

In a report dated Wednesday (Oct 20), the research house said its increased optimism for the Asean energy sector is premised on stronger demand growth due to "revenge spending" post Covid-19, as well as tighter supply as Opec+ rolls out its policy of measured production, which is expected to hamper output acceleration.

The latest 2022 oil price assumption could see further upside should the global energy crunch worsen, added Maybank KE.

"That said, rising volatility is a risk. As for US shale, unlike 2014, it is unlikely to make a comeback in a big way," said its analysts, who foresee production will be modest at 11 million barrels per day (bpd) in 2021 and 11.7 million bpd in 2022.

They are also expecting shale producers to continue exercising caution in capital expenditure, unlike pre-Covid-19, as financing options recede.

"A decade of underinvestment in energy supply chains may be catching up with us. Platts Analytics expects spare capacity to fall to 3.3 million barrels per day by end of 2021, of which 95 per cent is in the hands of Saudi Arabia, Russia, UAE and Kuwait. The spare capacity should accommodate pick-up in crude demand and cap prices; however, there is risk the actual number may be lower," they said.

Noting "skyrocketing" Singapore gross refining margins (S-GRMs) over the last few months, Maybank KE believes S-GRMs will remain elevated in Q4 2021 and Q1 2022 at US$6-8 per barrel as the energy crisis lingers.

They are however expected to go down to about US$5 per barrel in H2 of 2022 as the market re-rates refiners.

"Chemical prices/spreads saw a sustained rise of 10 to 20 per cent over the last three weeks, halting its declining trend," observed the analysts.

"The rise has been supported by China returning from holidays, restocking of low inventory levels, and China's energy crisis which has driven up domestic prices. We expect the trend to remain positive in Q4 2021 as regional demand should recover, while Q4 is historically high manufacturing season," they said.

Maybank KE's key "buy" stock picks include energy infrastructure and tech company Yinson Holdings, and Dialog Group, an integrated technical services provider for the oil, gas and petrochemical industry in Malaysia.

Thailand's PTT Exploration and Production remains the brokerage's top sector pick as it is the "most levered to oil", and it sees early signs of the company's share price correlation to crude reasserting itself higher.