by VINCENT WEE (6 Sept)
Oil prices fall to as low as US$106 a barrel from July's record US$147.27
WITH the fortunes of rig builders Keppel Corp and Sembcorp Marine so closely tied to oil prices, it's no surprise that both counters took a hammering yesterday as crude looked set to continue its downward spiral.
Oil prices have fallen more than 7 per cent this week, with crude for October delivery sinking to as low as just over US$106 a barrel yesterday. Prices are down by 27 per cent from the record US$147.27 on July 11.
Keppel Corp shares fell 49 cents or 5.4 per cent yesterday to close at a 12-month low of $8.64, while SembMarine shed 18 cents or 5.3 per cent to end the day at $3.23. The two biggest local rig builders were not the only ones affected by the falling oil price. China-based Cosco Corp (Singapore) fell 8.8 per cent to a year-low of $1.87.
Amid a sea of red downward arrows in an overall weak market, almost everything related to oil fell in tandem with crude. Offshore support players Ezra, Swiber and Jaya fell 6 per cent, 2 per cent and 6 per cent to $1.37, $1.31 and 98 cents respectively.
ASL Marine escaped relatively unscathed, easing just half a cent to 99.5 cents, probably due to the fact that its bread-and-butter tugs business is more closely related to the construction industry than the offshore sector, so lower energy prices actually help it reduce operating costs.
Analysts said that the sell-off was a knee-jerk reaction to oil prices. With respective net order books of $13 billion and $9.6 billion at end-June, and deliveries extending until 2012, Keppel and SembMarine are sitting pretty and churning out rigs as fast as they can build them.Deepwater rig charter rates have risen to around US$700,000 a day and owners are still keen to take delivery as quickly as possible.
Although the economics of oil exploration are such that the tipping point is still at least half of the current level, the question on everyone's mind is whether the oil boom will turn to bust. Investor nervousness is exacerbated by the credit crunch, which has resulted in one client of Cosco cancelling an order and a Keppel customer folding.
The other concern is how other business segments will affect performance. Keppel is being dragged down by the weak property market, since it owns 53 per cent of Keppel Land. And for SembMarine, some investors have niggling worries over an ongoing dispute it has with BNP Paribas over US$50.7 million in unauthorised transactions at its Jurong Shipyard unit.
Cosco, meanwhile, is doubly exposed to oil price volatility through its involvement in the bulk carrier market. Since it is also perceived as a player in the dry bulk segment, movements in freight rates and commodities weigh on its stock price too. As a result, falling commodity prices are an additional drag on its performance.
-Editorial Report by VINCENT WEE (6 Sept)
Oil prices fall to as low as US$106 a barrel from July's record US$147.27
WITH the fortunes of rig builders Keppel Corp and Sembcorp Marine so closely tied to oil prices, it's no surprise that both counters took a hammering yesterday as crude looked set to continue its downward spiral.
Oil prices have fallen more than 7 per cent this week, with crude for October delivery sinking to as low as just over US$106 a barrel yesterday. Prices are down by 27 per cent from the record US$147.27 on July 11.
Keppel Corp shares fell 49 cents or 5.4 per cent yesterday to close at a 12-month low of $8.64, while SembMarine shed 18 cents or 5.3 per cent to end the day at $3.23. The two biggest local rig builders were not the only ones affected by the falling oil price. China-based Cosco Corp (Singapore) fell 8.8 per cent to a year-low of $1.87.
Amid a sea of red downward arrows in an overall weak market, almost everything related to oil fell in tandem with crude. Offshore support players Ezra, Swiber and Jaya fell 6 per cent, 2 per cent and 6 per cent to $1.37, $1.31 and 98 cents respectively.
ASL Marine escaped relatively unscathed, easing just half a cent to 99.5 cents, probably due to the fact that its bread-and-butter tugs business is more closely related to the construction industry than the offshore sector, so lower energy prices actually help it reduce operating costs.
Analysts said that the sell-off was a knee-jerk reaction to oil prices. With respective net order books of $13 billion and $9.6 billion at end-June, and deliveries extending until 2012, Keppel and SembMarine are sitting pretty and churning out rigs as fast as they can build them.Deepwater rig charter rates have risen to around US$700,000 a day and owners are still keen to take delivery as quickly as possible.
Although the economics of oil exploration are such that the tipping point is still at least half of the current level, the question on everyone's mind is whether the oil boom will turn to bust. Investor nervousness is exacerbated by the credit crunch, which has resulted in one client of Cosco cancelling an order and a Keppel customer folding.
The other concern is how other business segments will affect performance. Keppel is being dragged down by the weak property market, since it owns 53 per cent of Keppel Land. And for SembMarine, some investors have niggling worries over an ongoing dispute it has with BNP Paribas over US$50.7 million in unauthorised transactions at its Jurong Shipyard unit.
Cosco, meanwhile, is doubly exposed to oil price volatility through its involvement in the bulk carrier market. Since it is also perceived as a player in the dry bulk segment, movements in freight rates and commodities weigh on its stock price too. As a result, falling commodity prices are an additional drag on its performance.
-Editorial Report by VINCENT WEE (6 Sept)
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