Wednesday, April 27, 2016


According to Bloomberg, the new magic number for the energy industry is US$50 per barrel, which promises much needed reprieve to cash flows.

With crude rebounding back to US$45 levels, the oil sector, which has been aggressively cutting costs to stay afloat, is now looking for signs of price stability.

Oilfield consultant Wood Mackenzie believes that at such price levels, cash flows of global oil majors could stop bleeding and there is talk that capex could even be partially restored in 2H16 if prices rise to the US$50 mark.

The global oil sector has slashed more than US$100b in capex in 2015 and US oil companies are planning to reduce budget spending by another 50% this year.

But investors are still fretting after oil prices rebounded to US$60 in May '15 before collapsing to almost US$26 in Feb this year.

Hence, any adjustment to capex would be gradual and hesitant even if oil prices hit the US$50 mark as oil companies will be looking to see if such prices can be sustained.

In light of this, any trickle down effects into Singapore's offshore sector will probably be scant.

Maybank KE continues to be Negative on the offshore sector with Sell calls on Keppel (TP: $4.42) and Sembcorp Marine ($1)

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