Weaker crude prices temper oil and gas sector prospects, says MBSB Research

PETALING JAYA: After the “unexciting” third-quarter earnings season, MBSB Research cautioned that the Malaysian oil and gas sector offers less upside in the future, amid crude oil price weakness that is likely here to stay.

In a note, MBSB Research told clients that Brent crude oil prices will likely fall further in the first half of 2026 onwards.

In the third quarter of 2025 (3Q25), prices have declined by 19% from the year-to-date high of US$82 per barrel in January to about US$67.

“We see less upside in the sector due to the expectation of a surplus in crude oil, which will subsequently cause crude oil to be traded at lower prices, impacting operations in the upstream and downstream that are closely tied to said prices.

“In general, we maintain our neutral” call on the sector.”

Regardless, the research unit said its preference in the oil and gas space is the midstream segment.

This is due to its recurring business model, which translates into stable earnings and predictable cash flow insulated from the direct impact of volatile commodity prices.

In 3Q25, MBSB Research pointed out that upstream service providers were still impacted by lower oil prices and the PETRONAS-PETROS overhang.

This, therefore, hampers capital expenditure in the segment.

Midstream players reported more stable earnings growth than their upstream counterparts, due to the defensive nature of their business models.

Furthermore, midstream players generally perform better in a lower oil-price environment.

Moving to the downstream segment, the petrochemicals segment reported another weak set of earnings, as lower product prices due to persistent overcapacity weighed on earnings.

At the same time, marketing and distribution also saw lower earnings growth due to a weakening trend in MOPS prices, which impacted revenue and profitability.

“In the gas distribution segment, companies under our coverage recorded a single digit decline in core earnings due to downward tariff adjustments and the Putra Heights incident.”

MBSB Research noted that upstream players' share prices have declined considerably, due to the uncertainties and structural change such as clean energy transition, crude oil surplus, and PETRONAS-PETROS overhang.

However, it advocated for a wait-and-see approach until there is more clarity before buying the dip.

“The thesis is also similar to the downstream and gas distribution players, which are lacking catalysts at the moment.

“To conclude, we advocate for having exposure to the midstream players such as Dialog Group Bhd as the viable names to keep invested in the sector on the basis that the midstream players will remain resilient, underpinned by the expected increase in demand for crude oil storage in the near to mid-term.

“We anticipate that Dialog's earnings will normalise in the financial year 2026 (FY26) and forward, as we expect that the impairments incurred in FY25 will not be repeated.

“The group's core midstream business is anticipated to remain a stable and robust source of income.”

High utilisation rates, stable demand for storage amid geopolitical uncertainties, and phased capacity expansions at the Pengerang Deepwater Terminals are projected to drive this segment's performance.

Meanwhile, Dialog’s upstream business is set to contribute following the development of the Baram Junior Cluster.