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Opportunity Or Danger? Offshore Sector Hammered By Weak Oil
Hot Picks, Tradeable | 13 October 2014
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By: Tradeable
Articles (256)

Oil prices dove to multi-year lows as Iraq – the second biggest oil producer in OPEC (Organisation of Petroleum Exporting Countries) cut prices for supplies to Asia and Europe in November. This follows earlier moves by Saudi Arabia and Iran to cut prices as the oil market witnesses a glut and possible oversupply of crude oil. The weak oil prices seem to have caused a knock-on effect on the offshore sector here in Singapore.

Here’s What We Know:

  • Oil prices are currently at 4-year lows with WTI crude oil trading at about US$84 a barrel and Brent crude oil trading at US$88 a barrel.
  • Source: FactSet, chart on crude oil prices from the beginning of the year

  • According to Bloomberg, speculators have been lowering their bets that crude oil will rise after the recent price drop. This seems to imply that the crude oil market is now firmly in a bearish market.
  • The fall in crude oil prices have caused a counters in the offshore sector as seen in the chart below. Offshore counters such as Sembcorp Marine, Keppel Corp, Ezion Holdings, Vard Holdings, etc appeared to have entered bear markets.
  • Source: FactSet, chart on the FTSE STI Oil and Gas Index

Tradeable’s POV

  • In the face of surging output, a further drop in crude oil prices is not out of the picture. There are some analysts who speculate that this flood of crude oil that is depressing oil prices is in part to punish Russia for its continued support of Ukrainian rebels.
  • While we do not expect crude oil prices to recover anytime soon, we feel that the overall supply glut of crude oil could depress the share prices of offshore counters for sometime. We are thus broadly negative on the offshore sector in the near term.
  • However, from Tradeable’s point of view, we feel that the depressed prices of offshore sector stocks could spell possible entry points for investors who have been looking to buy into the offshore giants but were fazed by the previously high prices. These include national champions such as Keppel Corporation and Sembcorp Marine. Other notable offshore counters include Ezion Holdings and Nam Cheong.
  • Looking at the charts, we note that Keppel Corp and Ezion look heavily oversold. While a possible technical rebound is possible, we are not confident of an actual change in trend. Therefore, if traders are keen to go in, do keep a tight stop-loss to guard against sudden movements.

Keppel is one of two charts that look to be heavily oversold.

Ezion is the second counter in our list that looks to be heavily oversold

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Keppel Corp  6.220 +0.05 +0.81%   
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  1.270 +0.020 +1.60%   
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
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
Nam Cheong  0.007 -0.001 -12.50%   
Business: An offshore marine group specialising in the building of offshore support vessels. [FY18 Turnover] Shipbuilding (59.2%), vessel chartering (40.8%).

Insight: May-19, 1Q19 revenue jumped multiple times to RM29... Read More


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