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Will 2013 Be The Year Of The Oil and Gas Sector? (Part II)
Econowatch, Tradeable | 20 February 2013
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By: Simeon Ang
Articles (125) Profile

Last week, I wrote an article which talked about the future of oil prices in 2013 and what it could mean to the oil and gas sector here in Singapore.

Basically, I concluded in that article that market analysts have difficulty in predicting where oil prices will head. This is particularly so given that it is particularly difficult to ascertain global demand of oil.

Difficulty in Ascertaining Oil Demand
One of the main reasons why it is so difficult to ascertain demand is because of conflicting economic statistics and developments. In its monthly webcast, FactSet discussed about the impact of developments in BRIC countries will have on oil prices and vice versa.

Essentially, FactSet noted that economic growth in emerging markets were not “decoupled” from developed nations. This is particularly true when measured against the economic slump experienced by the EU and the anorexic growth of the US.


Source: FactSet, graph comparing GDP growth between countries

Below, I have summarised the main points which FactSet pointed out during the webcast. These points relate to developments that can affect oil prices or the country’s economy.

India

      • Red flags (Potentially negative developments)
  • High interest rates
  • Highest budget shortfall (deficit)
  • Elections in 2013 may derail economic reforms
  • Imports 3/4 of crude oil it requires
      • Green flags (Potentially positive developments)
  • Raised diesel prices to reduce subsidies
  • Economic reforms

China

      • Red flags
  • Half of Gross Domestic Product comes from investments in fixed capital (such as infrastructure)
  • Geopolitical strains and more competitive Chinese firms will make it difficult for foreign companies to profit from economic expansion
      • Green flags
  • Capital expenditures and focus on infrastructure and industrial policy will help bolster near-term growth
  • Trade surplus rose sharply in December 2012
  • Recovery may be improving as demand for exports increases
  • Crude oil imports rose 6.8 percent
  • Demand for oil in China helps to support oil prices

The Oil and Gas Sector in Singapore
Here in Singapore, the oil and gas sector continues to see robust interest from investors. The FTSE Oil and Gas Index has appreciated 5.5 percent* versus Straits Times Index’s 4.1 percent* in 2013 so far.


Source: FactSet, graph comparing FTSE Oil and Gas Index and the STI

OCBC Research analysts noted in their recent updates that the sector continues to be driven by macroeconomic events, particularly oil prices. This is particularly so given that current oil prices continue to support the need for offshore investments by oil producing giants such as Petrobras.

Benefits of such investments had trickled down the chain, providing much impetus for investing dollars into the offshore support counters such as Ezion Holdings (+11.4 percent* year-to-date), Jaya Holdings (+3 percent* YTD) and Marco Polo Marine (+5 percent* YTD).

A Hit-and-Run?
However, as opined in my previous article and at the beginning of this, the prediction of oil demand can be very skewed and biased. Although oil prices continue to be supported by supply constraints, there appears to be increasing risks as we move along 2013. A confluence of macroeconomic events could spell disaster for black gold and in turn the oil and gas sector in Singapore.

In sum, could a hit-and-run strategy work for the oil and gas sector? Given the mixed bag of potentially positive and negative developments, this might not be such a bad idea.

*As at 19 February 2013

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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.

Ezion Hldgs  -- -- --   
Business: Co develops, owns, and charters offshore assets to support the offshore energy markets. [FY17 Turnover] Liftboats (49.7%), Jack-up Rigs (39.5%), Offshore Support Logistic Services (10.8%).

Insight: Aug-18, 1H18, Co returned to the black with a net ... Read More
Marco Polo Marine  0.017 -- --   
Business: A regional integrated marine logistic co, principally engaged in shipping & shipyard businesses. [FY18 Turnover] Ship building & repair (56.8%), ship chartering (43.2%).

Insight: May-19, 1H19 revenue slid 17.7% due to reduced shi... Read More


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