Oil & Gas Weekly Review: 17th – 23rd November 2008

December 1, 2008 at 9:03 am Leave a comment

• Next stop US$40?
Demand concerns continued to weigh down on oil prices during the week as another round of high inventory data was reported by the US. Oil prices went below US$50 during the week and have continued to hover
vicariously at that level since. Prices sustaining into the long term at US$50 will have major repurcussions on the industry in the longer run we think. Low oil prices will now lead to less capex spend on new developments and hence could lead to another round of supply shortage in the future. This is however yet to be seen as we believe that once demand from OECD countries kick back in, oil prices should see some
recovery. This could take more than 12 months however. Also, a prolonged recession in the US would see a declining dollar and this may have inverse effect on commodity prices as we have seen previously. Average crude oil price for the year is currently US$106.20 per barrel.
• But rates continue to see highs abroad.
Despite the state of oil prices, drilling rig rates have reportedly hit new highs. ODS-Petrodata reported that 3 new deepwater rigs were chartered during the week for some US$600,000 per day, higher than any rates
seen so far. Besides this, vessel charter rates in the North Sea have also broken new highs. Data from October showed that charter rate for an 18,000 bhp AHTS hit close to US$11.00 per bhp per day. As a point of comparison, rates for a vessel of that size have been between US$5-8 per bhp per day previously. We see that charter rates might have a chance of holding steady for sometime as trouble in shipyards are actually leading to a shortage of rigs and vessels in some markets hence keeping charter rates high. Whether this would be the case yet in Malaysia is difficult to say we believe as most vessels are largely on long term charter and hence may miss any immediate fluctuations in spot rates.
• News and Views
It was indeed a lacklustre week for the industry in terms of news flow on corporates. Abroad, we read that the OPEC has also lowered their demand forecasts and will be meeting again soon to discuss the state of
the industry. Whether or not supply cuts will be announced again waits to be seen. Besides that, Saudi Aramco announced that it was placing its Manifa field (planned for 900,000m bpd by 2011) project under review until further notice and has even cancelled an EPCC contract with Saipem. Petronas on the other hand announced its investment of some RM700m in the Uzbekistan energy sector with the focus on its natural gas
reserves.
• Maintain NEUTRAL on the Sector.

News and Views

US Crude oil inventories still on a steady climb
One of the key factors inducing oil prices now would be slowed demand as can be seen from weekly data on US crude oil inventories, which had been on a steady climb since mid- August. This climb in stocks has even been despite the drop in imports of crude oil and refined products.

Market Movements
Continued decline vs the strong dollar
Stocks prices came off last week after 2 weeks of relatively flattish movement led by KNM which continues to see foreign selling. In fact, on Friday it was announced in the media that Fidelity had been net sellers for the past 3 weeks and have so far shaved their stake of 9.1% to 6%. This is alarming indeed for KNM however the company continues to be active on share buybacks (3m share over the week) to sop up excess in the market.

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Economics – US: Expecting A Soft Recovery In 2H09 Plantations Weekly Review: 17th – 23rd November 2008

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