ISLAMABAD: Despite oil trading low at $60, the Organization of the Petroleum Exporting Countries and their allies — collectively known as OPEC+ — is expected this week to continue to further open the taps, a development that analysts believe is “broadly positive” for Pakistan’s macroeconomic outlook and the equity market.
In past months, Saudi Arabia, Russia and six other OPEC+ members have surprised markets by announcing a sharp increase in oil production for May and June despite the low prices.
This week the cartel will hold two meetings, one online on Wednesday with all OPEC+ members to discuss the group’s common strategy, and one on Sunday with just the eight member states, known as the “V8,” that have made the largest cuts in recent years.
“During the group’s upcoming meeting on June 1, members are likely to approve a production increase that is three times larger than the previously planned hike of 137k barrels per day,” Pakistani brokerage house Topline Securities said in an analysis, saying the “aggressive” output hike had put Pakistan in a “sweet spot.”
“We believe this development is broadly positive for Pakistan’s macroeconomic outlook, with positive spillover for equity market, which is trading below historical valuation multiples.”
Topline said companies reliant on Re-gasified Liquefied Natural Gas such as Tariq Glass Industries, Ghani Glass Limited, and Descon Oxychem Limited were set to gain from declining feedstock prices and poised for margin expansion in the coming quarters.
“On the other hand, exploration and production companies may face earnings pressure due to weaker oil prices but improved cash recoveries and enhanced liquidity could support their cash flow generation,” Topline said.
“Overall, we maintain a bullish stance on the equity market, supported by improving macro fundamentals. However, a key risk remains the upcoming federal budget, particularly the possibility of adverse tax measures on capital gains or corporate profits, could temper investor sentiment.”
Analysts expect the V8 to up production by 411,000 barrels a day for July — the same as in May and June — whereas the initial plan called for an increase of just 137,000 barrels.
This could further weigh down prices already slumping to lows last seen during the pandemic, which hit global demand.
OPEC+ have justified their change in strategy by citing “current healthy market fundamentals, as reflected in the low oil inventories.”
With inputs from AFP
