The oil price upcycle has not started yet.
When oil prices started to recover marginally in February, battered offshore and marine (O&M) stocks in Singapore saw a huge inflow of investor interest. However, CIMB analysts warn that it might be too early to be jubilant about an oil price recovery, as an oversupply situation still exists and demand for jackup rigs remains lacklustre.
“The oil price rise that started in Feb 16 is premised on the hope that OPEC and Russia freeze output at Jan levels. However, there is still global oversupply, with present production surplus of 2 million barrels per day,” CIMB said.
“The frenzy in the Singapore O&M sector during the past week is an indication that the market is trading ahead and assuming that oil price has troughed and will normalise at US$50/bbl,” CIMB added.
CIMB noted that big-cap stocks are trading at a super-cycle average of 18x Price/Equity for 2017, as though investors were ignoring the possibility of default from Brazil and assuming that the yards will reap in around $10bn of orders in 2016-17.
Meanwhile, the small caps are trading at 8-10x CY17 P/E, oblivious to the crippled utilisation charter rates and glaringly high leverage.
“Fundamentals have not improved in the latest rounds of results, with no major catalysts for order surge, deliveries are being pushed back, charter rates were cut and cancellation risks prevail,” CIMB said.
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