Confidence in O&G sector

PETALING JAYA: CIMB Research expects Malaysia’s oil and gas (O&G) sector to remain supported by resilient upstream investment, favourable capital expenditure trends and lingering geopolitical risks, despite forecasting a mixed second-quarter of financial year 2026 (2Q26) earnings season for companies under its coverage.

The research house maintained its “overweight” rating on the sector, citing an attractive risk-reward profile, and continued to favour Dayang Enterprise Holdings Bhd, MISC Bhd, Velesto Energy Bhd and Dialog Group Bhd.

“Continued global oil inventory drawdowns should tighten market balances and establish a higher floor for oil prices, even after geopolitical disruptions ease,” the research house said, adding that new foreign operators, capital redistribution initiatives from Petroliam Nasional Bhd (PETRONAS) and growing energy security concerns should continue supporting domestic capital spending.

For the April-to-June quarter, CIMB Research expects earnings across the sector to be uneven, as companies experience differing impacts from higher energy prices and supply-chain disruptions.

PETRONAS Chemicals Group Bhd and MISC are expected to benefit from stronger petrochemical prices and tanker freight rates respectively.

Meanwhile, Dayang Enterprise should post a sequential improvement as offshore maintenance activity recovered following the monsoon season.

Velesto Energy’s earnings are projected to soften because several jack-up rigs are undergoing contract transitions, while changes to the Budi95 fuel quota and civil service work-from-home arrangements are expected to have only a limited impact on PETRONAS Dagangan Bhd.

“We expect a mixed 2Q26 results season for O&G companies under our coverage,” the brokerage said.

Looking into the second half of financial year 2026 (2H26), CIMB Research expects investor attention to centre on upstream project ramp-ups, firmer fertiliser and methanol prices, potential offshore contract awards for MISC, developments in the Middle East and policy signals from Budget 2027, particularly on fuel subsidies, carbon tax and PETRONAS’ dividend commitment.

The research house also expects PETRONAS’ partnerships with Eni, TotalEnergies and EnQuest to broaden Malaysia’s operator base and sustain upstream activity over the medium term.

On the geopolitical front, CIMB Research said the diplomatic outlook surrounding the Strait of Hormuz had improved following discussions between Iran and Oman over a proposed shipping framework, although significant uncertainties remain.

“The arrangement could provide a pathway to restore normalised vessel traffic, bypassing the need to wait for a full political settlement,” the report said.

However, it cautioned that the arrangement should be viewed as a temporary operational mechanism rather than a permanent reopening of the Strait of Hormuz.

The brokerage warned that risks have expanded beyond the Strait of Hormuz to include other strategic shipping routes, export terminals and energy infrastructure, reducing the market’s ability to withstand another major supply disruption.

“The bigger concern is that the conflict is no longer an isolated Hormuz disruption,” CIMB Research said.

“This leaves the global oil system with fewer effective workarounds should disruption intensify again.”

Against this backdrop, the brokerage maintained a base-case Brent crude oil price assumption of US$85 per barrel for 2H26 and US$80 per barrel for 1H27, while noting that risks remain tilted to the upside.

A durable ceasefire and the normalisation of Gulf exports could pull prices down to between US$70 and US$75 per barrel, whereas renewed disruptions could lift Brent above US$100 per barrel.

CIMB Research also believes PETRONAS’ ongoing portfolio restructuring will reshape Malaysia’s upstream landscape by reallocating capital towards higher-growth gas and liquefied natural gas projects while bringing in more international partners.

“We believe PETRONAS is undertaking a multi-year portfolio restructuring aimed at improving capital efficiency and concentrating resources on higher-priority growth areas,” the brokerage said.

Rather than signalling a retreat from upstream investment, the partnerships and asset transfers are expected to broaden Malaysia’s operator base and make overall spending by all operators a more meaningful measure of industry activity than PETRONAS’ standalone capital expenditure.

“The key test is whether the restructuring translates into actual project sanctions, drilling programmes, brownfield work, and contract awards,” the research house said. “If execution follows, the model could stretch each ringgit of PETRONAS’ capital further, broaden Malaysia’s operator base, and support a more sustainable recovery in domestic upstream activity.”

Meanwhile, an analyst of the sector attached to a foreign research firm believes that investors should focus less on near-term earnings volatility and more on the structural changes underway. The biggest catalyst over the next 12 to 24 months is not the Strait of Hormuz or oil price spikes, but PETRONAS’ evolving capital allocation strategy, she told StarBiz.

The analyst said: “As such, I would be more selective than broadly bullish.

“Offshore service players such as Dayang Enterprise and Dialog stand to benefit from sustained maintenance and project activity, while MISC should continue to enjoy resilient demand for energy shipping and liquefied natural gas logistics.”

In contrast, she remains more cautious on companies whose earnings depend heavily on elevated oil or petrochemical prices, as geopolitical risk premiums could unwind quickly if Middle East tensions continue to ease.