• Keep OVERWEIGHT; Top Picks: Yinson and Dayang Enterprise (DEHB) in Malaysia, PTT in Thailand, and Elnusa (ELSA) in Indonesia. Post cutting our Brent crude oil price forecasts for 2025-2026, we think the oil market will continue to face uncertainties in 2025, amidst rising supply and a moderation in the growth of demand. We prefer upstream service providers with greater exposure in the maintenance-related space – as they should have more resilient earnings – and corporations with international diversification.

• We cut our Brent crude oil price forecasts for 2025 and 2026 to USD75/bbl each year (from USD80/bbl) in view of the weaker demand outlook and persistent supply led by non-OPEC regions. OPEC expects 2025 global oil demand to grow by 1.5mbpd YoY (2024F: 1.8mbpd), taking total demand to 105.6mbpd next year – premised on a global GDP growth forecast of 3.0% YoY. Agencies such as the US Energy Information Administration (EIA) and International Energy Agency (IEA) are still projecting positive growth of 1.0-1.2 mbpd this year. The moderation in OPEC’s estimate reflects the end of the post-pandemic pent-up demand and below-par underlying global economic conditions, coupled with clean energy technology deployment.

• Trump’s energy agenda will cloud sentiment but near-term impact is likely to be limited. Donald Trump’s imminent return as the next US president has raised concerns over the progress of domestic and global climate controls. These measures, in our view, are unlikely to boost production significantly, at least within the next 1-2 years. Meanwhile, one of Trump’s campaign promises was to impose stricter oil sanctions on Iran and Venezuela – measures which eased during President Joe Biden’s time in office. Overly aggressive sanctions may not be aligned with Trump’s intention to bring down energy prices. Generally, these sanctions could remove a portion of the oil supply from the market whilst heightening geopolitical tensions.

• A USD40/bbl scenario if OPEC were to flood the oil market again. Following OPEC+’s decision to extend its production cuts until Apr 2025, we are still of the view that the cartel remains intact and would choose to support the oil market whenever necessary. This is despite OPEC+’s influence over the oil market decreasing this year, after failing to keep oil prices at desired elevated levels. We believe OPEC+ is still adopting a wait-and-see approach over Trump’s actions towards the oil market. If the actions taken by Trump are deemed as a potential long-term threat, we do not discount the possibility of OPEC re-initiating a price war against the US to eliminate shale oil producers, just like what happened in 2014. The odds of this happening, however, are still low – since Saudi Arabia and some of its allies are heavily dependent on oil to balance their fiscal condition.

• Downside risks to our outlook: Weaker-than-expected oil prices, high-thanexpected operating costs, and contract cancellation.

Source: RHB Securities Research - 11 Dec 2024