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Oil prices pushing new four-year lows

Brent has settled 4.6% down overnight to hover around $82 per barrel, its lowest level since 2012. The benchmark joins WTI, which is hovering around $85 per barrel, pushing new four-year lows.

Oil barrels
Source: Bloomberg

The falling prices are in line with a demand outlook that has been getting gloomier during recent weeks.

It also didn’t help with the cuts to global growth outlooks by the International Monetary Fund and World Bank earlier this month.

There has been pressure from the supply side. Oil producing countries such as Saudi Arabia, Iran and Kuwait have indicated they will not cut production to support prices, but are still keen to maintain their market share.

The latest catalyst for the slide came from the International Energy Agency yesterday. The watchdog cut its estimates for global oil demand growth by 250,000 barrels per day for this year and by 90,000 barrels per day for 2015.

There was also further gloom with a disappointing reading on Germany’s ZEW Economic Sentiment. Yesterday’s print showed a reading of -3.6, well below the consensus forecast of 0 and the prior month’s 6.9. A level above 0 indicates optimism in the economy among investors and analysts, and a negative reading denotes pessimism.

SembCorp Marine under pressure

With oil prices under pressure, one of the stocks being punished by investors has been Singapore-listed SembCorp Marine (SMM).

With falling oil prices making production less profitable, there are higher concerns that oil explorers could cut back spending, which will affect SMM’s shipyard business.

Since the start of July, WTI oil prices have dipped over 23%. Within the same period, SMM’s stock price has fallen nearly 10% on the bleaker outlook over black gold. On a year-to date basis, the stock is down nearly 18%.

The stock enjoyed a slight bounce of 0.27% on Monday due to news that it had secured a US$696 million (S$877.23 million) vessel conversion contract from OOGTK Libra GmbH & Co KG.

However, on a technical basis, bearish signs suggest this will be short-lived and there will be further downside in the short term.

The stock has been respecting a downtrend line and has failed to break above this since September. It is also under pressure below its 20, 50 and 100 DMA.

The next turning point to watch out for is how the stock responds to the downtrend line resistance. A pull back will suggest it will look for support again at its month-low of $3.57. Conversely, a clear break above the trend line will suggest sentiment has turned – an unlikely scenario with the current pressure on oil prices.

Sembcorp Marine Ltd
Click to enlarge

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