SINGAPORE: Oil prices are expected to fall further in coming months, amid concerns about the global economy and a rise in inventories.
Crude oil prices fell again on Tuesday (Jan 5), giving up recent gains sparked by growing tensions in the Middle East. This could spell trouble for Singapore's large offshore and marine sector.
Analysts have said that as long as oil production from the region continues at current levels, the decline in oil prices looks set to continue in coming months. UOB, for instance, said oil may trade lower at US$30-35 a barrel in 2016, down from current levels of around US$35. Reasons for the decline included high production levels that have led to growing inventories in countries like the US.
“In general, we still look at the oversupply issue as a key crux for the oil price direction. If you look at what happened over the weekend, the Middle East geopolitical situation itself - it has caused the price to spike up for a short while, but in the end yesterday, the prices still went back down lower than it was,” said Mr Alvin Liew, senior economist at UOB.
“So clearly the focus is still on the supply issue. That said, if we get an unexpected major event happening in oil-producing countries in the region, such as the Middle East, there would be an impact onto higher oil prices. But if you put everything on balance, it’s still more likely to be a supply issue."
While Singapore is not an oil producer, the sustained decline in oil prices has caused oil companies to reduce their production and exploration, depressing orders for Singapore's marine and offshore engineering sector, whose output exceeded S$21 billion in 2013, according to Government data.
Output from the sector has fallen sharply in recent months, as clients deferred or tried to cancel existing orders. Analysts said some firms may face difficulty rolling over their debt, forcing them to close or sell themselves to stronger rivals.
"Those who have a lot of debt that is going to be due this year, they will be looking around for refunding, refinancing, or may have to downsize operations. It’s a challenging period for these companies,” said Mr Roger Tan, CEO of Voyage Research.
Voyage Research said many oil and offshore marine companies have stopped hiring, and warned that more job cuts could be on the horizon.