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Oil price steadies slightly, but market gloomy all round

Analysts do not see any near-term reprieve for oil prices
Friday, December 12, 2014 - 05:50

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As the price for internationally traded crude oil went below US$65 a barrel for a second day, some are fearing the worst. At least for the near term, analysts do not see any reprieve for oil prices

Singapore

AS the price for internationally traded crude oil went below US$65 a barrel for a second day, some are fearing the worst. At least for the near term, analysts do not see any reprieve for oil prices. (see infographic)

"We continue to reiterate the bearish trend for crude oil with no reversal at least till the end of the year," said Phillip Futures investment analyst Daniel Ang.

Concurring, OCBC economist Barnabas Gan said: "It looks like US$60-65 a barrel is the new normal till the end of the year."

A colder-than-expected winter in the US could lend support to prices, but the market now seems more focused on rhetoric by the Organization of the Petroleum Exporting Countries (Opec), he added. "It really depends on what Opec will say from now till (its next meeting in June)."

The oil cartel is sticking by its stand of not cutting its output for now. "Why should I cut production?" Ali Al-Naimi, the Saudi oil minister, was reported as saying in Lima, Peru. "This is a market and I'm selling in a market. Why should I cut?"

The oil price could drop below US$60 a barRel in the near term, ANZ commodity analysts Natalie Rampono and Mark Pervan said in a report on Thursday, though it will range between US$60 and US$80 in 2015.

The bank downgraded its 2015 forecast by over 20 per cent to an average price of US$71 a barrel for Brent and US$68 for US crude WTI.

Oil-related stocks suffered another round of beating while transport stocks gained. Among the most heavily traded stocks on the Singapore Exchange on Thursday were offshore oil service provider Ezion, which shed 3.5 cents, or 3.1 per cent, to S$1.08. Tiger Airways, which will benefit from lower fuel cost, rose two cents, or 6.8 per cent, to 31.5 Singapore cents.

In a sign that the market is still expecting worse to come, short-selling interest in energy stocks in the S&P 500 in the US has risen to 3.25 per cent on average, compared to 2.1 per cent for the overall index, according to data provider Markit.

While shares for companies such as Chevron have touched multi-year-lows, Credit Suisse Private Banking cautioned on Thursday that it is still too early to buy.

"Energy equities have already generally adjusted in line with crude oil prices to below current spot and forward levels and so there is not likely to be much additional downside without significant renewed weakness in oil prices," the bank said in a report. "But, in our view it is still too early to buy energy as a sector, and risk premia are likely to stay high."

Brent crude steadied to trade at around US$64 a barrel on Thursday after reaching a low of US$63.56 a barrel the day before - the first time in five years that it has fallen below US$65 a barrel.

Oil prices are still struggling to find a floor after Opec decided to maintain production at 30 million barrels a day at its meeting in late November, despite some of its members urging for a cut to put a halt to falling prices.

On Wednesday, it lowered 2015 forecasts for demand of its crude to the lowest level in 12 years, reducing its projection by 300,000 barrels a day to 28.9 million barrels.

Data released by the US Energy Information Administration the same day also showed that weekly crude oil inventories in the US, which is typically lower due to seasonal demand, increased for the week ended Dec 5 to its highest seasonal level.

"Despite expectations that falling crude prices would heavily affect US oil producers, US field crude production increased slightly to 9.1m barrels/day," said Mr Ang. "For a reversal (in prices) to happen, we expect to see US crude field production to start to stagnant or even decrease."

The oil rout has caused a rethink of plans at oil majors and national oil companies.

BP on Wednesday announced a US$1 billion restructuring programme, which would lead to a cut in several thousand jobs next year. It also said it could further trim its capital expenditure programme for next year.

Earlier this week, ConocoPhillips said it plans to spend less next year, cutting its capital expenditure by 20 per cent compared to this year's levels. Nearer home, Petronas, too, has said it will rein in capital expenditure by 15-20 per cent.

Cheaper oil, however, is proving to be a boon for airlines. The International Air Transport Association (Iata) projected a record net profit of US$19.9 billion for the industry this year, up from an earlier estimate of US$18 billion, thanks to lower fuel prices and stronger global economic growth.

Read all the latest news and analysis on oil prices here: Oil Rout