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Will 2013 Be The Year Of The Oil & Gas Sector? (Part I)
Econowatch, Tradeable | 14 February 2013
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By: Simeon Ang
Articles (125) Profile

The oil and gas sector in Singapore has been quite a darling for analysts and investors alike. With heavy weights such as Keppel Corporation and Sembcorp Marine doing quite well in terms of financial performance and contract wins, the sector has been quite bullish. However, the sector is seen to be highly correlated with macro-economic events particularly events that affect oil prices.

On 15 February, oil prices marched northward as favourable employment reports from the US signalled better economic prospects there even though the same could not be said for the Eurozone. However, the US Energy Information Administration projects that crude oil prices would fall from an average of $112 per barrel in 2012 to an annual average of $109 per barrel in 2013. This reflects the increasing supply of crude oil from non-OPEC (Organisation of the Petroleum Exporting Countries) countries, in particular the US.

Source: US Energy Information Administration, graph on short term oil price outlook

Energy Sector Barometer – Petrobras
In a Webcast about the the oil market in 2013, FactSet economics specialist, Lauren Kline, started off first by looking at the energy sector. While looking at the energy sector, Petrobras offered a good insight into the sector because it is a major oil and gas exploration, production and distribution company in Brazil. The oil giant is also responsible for the bulk of contract wins by both Keppel Corporation and Sembcorp Marine.

The fortunes of Petrobras seem to be correlated with the price of oil as shown in the graph below.

Source: FactSet, graph on correlation between oil prices and Petrobras’ stock price

Petrobras’ quarterly profit was up 53.4 percent in 4Q12. However, full year profit is at its lowest since 2004. Strong oil demand in Brazil had forced the company to import more crude oil from overseas. This resulted in billions of dollars worth of losses in Petrobras’ refining sector.

Oil Market Risk Factors
Particularly in the Middle East, where civil strife is probably at an all time high. The nuclear standoff between Iran and the Western world has also scrimped oil supply from the once big supplier of oil, Iran. With heavy sanctions preventing Iran from exporting oil, Lauren produced a graph depicting the huge slump in oil production there.

Source: FactSet, graph on oil production in Iran

During FactSet’s webcast, Lauren noted that Iran had scheduled to restart negotiations on 25 February with Western powers. If the embargoed Iranian oil returns to the market, oil prices could fall. In recent developments however, Iran seemed to have indicated that some progress had been made in talks with the United Nations nuclear watchdog, the International Atomic Energy Agency.

Meanwhile, the Paris-based International Energy Agency has lowered its consumption forecast by 85,000 barrels per day compared with data from a month ago. On the other hand, OPEC had previously raised 2013 forecasts for crude oil demand as they cite signs of recovery in the global economy. Market analysts believe oil prices have avoided dramatic fluctuations because of this difficulty in pinpointing what energy demand will be this year.

In sum, it would appear that the oil market is in for a rather tumultuous 2013. There are many events that are projected to take place which could eventually shape the price curve of oil.

Join me next week, as I draw attention to Asian growth engines, India and China, and what impact these nations will experience or have an effect on oil. Also, I will conclude with a summary of what has been discussed and ultimately, what effect this will have on Singapore stocks.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

Keppel Corp  6.210 -0.04 -0.64%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Sembcorp Marine  1.290 -0.010 -0.77%   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More

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