MISC: Oil & Gas Sector Outlook Remains Neutral Amid Persistent Oversupply Risks

TA Securities maintains a Neutral stance on the Oil & Gas sector, citing persistent global oil inventories and an outlook for supply to outpace demand into 2026, which is expected to keep Brent crude prices range-bound. Despite ongoing geopolitical noise, the overall market remains structurally oversupplied.

Global Inventory Builds and Price Pressure

The Energy Information Administration (EIA) projects global oil inventories to continue rising into 2026. This build is driven by production levels that are anticipated to exceed consumption by approximately 2.25 million barrels per day (mbpd), leading to sustained inventory accumulation. Such an increase could strain available onshore storage capacity, potentially pushing excess barrels into higher-cost alternatives like floating storage, thereby influencing market pricing dynamics.

While downside risks to oil prices persist in the short term, a disorderly decline is considered unlikely. This resilience is attributed to the supply discipline demonstrated by OPEC+ – with production running below targeted levels – and China’s ongoing strategic stockpiling efforts, which are expected to cushion prices from sharper weakness. Additionally, rising marginal storage costs are believed to form a natural price floor, contributing to a more range-bound price environment despite continuous inventory accumulation.

Geopolitical Noise and Market Dynamics

Recent developments in Venezuela have reintroduced geopolitical risk into the oil market. However, despite elevated headlines, Venezuela’s supply disruption risk is seen as limited in the near term and is unlikely to trigger an immediate imbalance in global oil markets. The country’s oil production, which peaked in the late 1990s, has significantly declined due to sanctions, underinvestment, and operational degradation. Current production stands at only 20-25% of its historical peak, underscoring severe capacity erosion.

OPEC+ has responded to these dynamics by reinforcing its commitment to supply discipline and market stability. The group reaffirmed its decision to pause planned production increases in February and March 2026, acknowledging seasonal demand softness and an already well-supplied market. This cautious stance aims to anchor price expectations and limit downside risks, particularly as non-OPEC supply growth and weak near-term demand continue to weigh on fundamentals.

Specific Opportunities Amidst Sector Neutrality

Amidst the sector’s neutral outlook, TA Securities highlights stock-specific opportunities. Coastal Contracts (Buy, TP: RM2.21) offers strong earnings visibility, supported by fully utilized Papan and Perdiz plants, and a Perdiz contract secured until December 2027. Potential capacity expansions at Perdiz and the Papan Phase 2 project, expected for COD in November 2026, provide additional medium-term upside.

Similarly, MISC (Buy, TP: RM8.40) is recommended as a defensive pick, backed by stable cash flows from long-term LNG charters and recurring income from long-life FPSO contracts, ensuring a resilient multi-year earnings outlook.