Petroliam Nasional Bhd (PETRONAS) is expected to sustain Malaysia’s oil and gas sector momentum through continued upstream investment, according to RHB Research. Despite significant capital expenditure (capex) recorded in the first half of financial year 2026 (1H26), the research firm emphasized that the upstream segment remains the more relevant driver of growth.

PETRONAS reported total capex of RM41.4 billion in 1H26, but this figure was largely influenced by downstream activities, which accounted for RM26 billion or 63% of the total. The spike in downstream spending was mainly due to increased capital injection into the Pengerang Refining and Petrochemical joint venture, aimed at securing full ownership of the complex. In contrast, upstream investment rose 19% year-on-year to RM8.7 billion, underscoring its critical role in the company’s overall strategy.

RHB Research highlighted that geopolitical tensions continue to support oil prices, petrochemical prices, and freight rates in the near term. The firm maintained its Brent crude price forecasts at US$89 per barrel for 2026 and US$72 per barrel for 2027, noting that oil prices are unlikely to return to pre-war levels immediately even if a ceasefire occurs or the Strait of Hormuz reopens. The key challenge now lies in physical supply constraints rather than solely geopolitical risks.

Data from Kpler showed Middle East refinery throughput dropped to 7.3 million barrels per day (mbpd) in August, down from 9.9 mbpd before the regional conflict, resulting in approximately four mbpd less refined product supply. Recovery is expected to begin in the fourth quarter of 2026, with full restoration to pre-war levels anticipated only by the second quarter of 2027 due to extensive damage and repairs needed for infrastructure. Qatar’s liquefied natural gas (LNG) facilities are also affected, with 17% of capacity currently offline and repairs projected to take up to three years.

Rystad Energy estimates the cost of repairs and restoration across Middle Eastern energy infrastructure at between US$34 billion and US$58 billion, including US$30 billion to US$50 billion allocated specifically for oil and gas facilities. As a result, even if geopolitical risk premiums decrease, the physical supply deficit is likely to unwind gradually, sustaining support for oil, refined products, and freight markets.

Midstream fundamentals remain robust, with tanker rates rising prior to the recent conflict due to increasing crude exports, longer trade routes, and limited vessel availability. Although geopolitical risk premiums could soften, tanker rates are expected to stay above last year’s levels. LNG shipping has also shown signs of recovery, with improved charter rates contributing to a more stable earnings outlook.

Petrochemical prices have shown mixed trends since the initial war-induced surge. Prices for urea and ammonia have eased as supply fears diminished, while methanol prices have strengthened amid ongoing Middle East supply disruptions and tighter availability. The sector’s near-term price outlook remains volatile and heavily dependent on the pace of supply restoration and geopolitical developments rather than a broad-based normalization.

For PETRONAS Chemicals Group Bhd, this mixed pricing environment offers limited overall margin support, as gains from methanol prices are offset by weakening urea and ammonia prices. The research house views improvements in plant utilization as a more critical factor for near-term earnings growth.

Regarding second-quarter 2026 sector earnings, RHB Research described the results as highly polarized. Of the 10 companies under its coverage that reported results, five outperformed expectations while four missed estimates, with no companies reporting broadly in line. Positive deviations were attributed to stronger tanker rates, margin recovery, and better project conversions, whereas downside factors included weak project execution, lower utilization, supply chain issues, and operational disruptions. On a market capitalization-weighted basis, the reporting season was positively skewed, as stronger performances by key large-cap companies outweighed the earnings shortfalls in smaller firms.