Oil and Gas: Supply-driven Price Movement; Offshore Investment Appetite Remains Promisingn (OVERWEIGHT)

Stock Code	Last Price	Change	Change %
DSSA	44,950	2,700	6.39%
DCII	169,200	2,250	1.35%
MFIN	5,400	800	17.39%
RDTX	12,450	700	5.96%
PTRO	2,910	460	18.78%
MKPI	25,200	450	1.82%
CUAN	7,325	350	5.02%
RATU	5,700	300	5.56%

Oil and Gas

Supply-driven Price Movement; Offshore Investment Appetite Remains Promising

Oil prices surpass US$80/bbl mark over the week before pulling back due to supply cuts from Libya and several geopolitical events.
We maintain an optimistic view towards offshore investments due to higher investment commitment in offshore exploration.
We reiterate our BUY rating on MEDC and WINS.

Elevated tension and supply risk persists

Geopolitical tensions have risen again in the past week, starting with one of Russia’s largest strikes on Ukraine’s energy facilities and infrastructure, retaliating against Ukraine’s cross-border attack into Russia’s Kursk region earlier this month. Following this, Israel launched a preemptive strike on Hezbollah in South Lebanon, marking its largest strike since 2006, to prevent further aggressions from the militant group. However, we believe the initial 7% rally in Brent oil price to US$81/bbl was mainly attributed to Libya’s oilfield closure that have reached 209kbpd (from its total production of 1.2mbpd) due to internal tension over its central bank leadership, with possible shutdowns of up to 1mbpd. Soon after, prices retreated to below US$80/bbl as we believe that oil prices to be influenced more by S-D dynamics rather than short-term geopolitical events, as demand growth have been weaker in 2Q24 (+870kbpd) compared to FY23 (+2.1mbpd) due to a softer China refining demand, while U.S oil production is close to its highest level at 13.4mbpd, +4.7% yoy.

Exploration in offshore projects is growing

After Guyana’s massive exploration, Namibia is poised to be an oil producing country as it anticipates two major FIDs on Graff and Venus deepwater oil project by end of FY24, where both projects are estimated to contain 4.7bn barrels of crude oil that will be explored by Shell and TotalEnergies. On the other hand, New Zealand intends to reverse ban its offshore oil and gas exploration by FY24 due to low energy output from its renewable sources, which should attract exploration investments in the following years after its natural gas production declined by 13% in FY23 and another 28% in 3M24. We believe our thesis of growing offshore exploration in global market is intact, which should continue to sustain high charter rates of OSV in the following years.

Maintain Overweight on the sector and Buy ratings on MEDC and WINS

We reiterate our Overweight stance on the sector with a Buy rating for MEDC (TP Rp1,700) and WINS (TP Rp760) on the back of rising O&G exploration activity, which in turn shall spur investments in the sector.