Sunday, 18 June 2017

Low Oil Price for a Long Time

Let's face the facts: Low oil prices are here to stay for a while.

Despite OPEC's commitment to continue supply cuts until mid 2018, the world is still producing more oil than it needs (similar to our local property oversupply and global container ship glut). In addition, Singapore is now set to be one of the largest "parking lots" for large crude oil tankers as covered in this article. In my opinion, low oil prices are expected, to 2019; because i) oil supply outstrips global demand due to production increase by USA and Nigeria and ii) the need to draw down on excess inventories built over the past 4 years.

It is this current scenario that investors will have to consider and position our investments. 


What are the consequences? There are many but all are hypothetical reasoning - oil & gas offshore support industry (e.g. Ezra, Mermaid) will continue to suffer from overcapacity, more foreign worker layoffs in O&G sector will mean less demand for rental housing, etc.

This comes to show how beyond the element of quantitative investing (e.g. P/E ratio, Free cash flow calculation), investing too carries the element of qualitative analysis - What is the future trend, how is each company affected by it and is their current balance sheet/management structure able to withstand it?

As for me, I am positioning for an upturn in the tanker charter markets (which too is experiencing an increase in new build tanker deliveries, a potential oversupply)

It is important that each individual forms his/her own opinion (investment thesis) based on the trend and how one expects it will progress. Hence, feel free to share your thoughts in the comments below on the current market trends.
*[Spams are not welcomed! I am referring to you spam bots, for the recent littering of comments which I have to clean]

^(Accumulated more FSL Trust and monitoring semi-conductor related stocks)