Chart of the Day: Discover the culprit behind the drastic plunge in oil prices

Everyone took a painful beating this month.

The crash in oil prices, alongside slowing growth in the global economy, have set the stage for an edgy year-end for corporate Singapore.

According to a report by CIMB, the combined impact of Europe’s decrepitude and China’s investment slowdown meant that the engines of demand were not very strong to begin with. Add the talk of Saudi Arabia is acting unilaterally and dumping oil, plus a rising shale gas output in the US, they are not hopeful of a sustained rebound in oil prices.

CIMB’s theories attributed to the recent drastic fall in oil price include: 1) slowdown in Europe and China industrial production, 2) the US shale production boom and cut in OPEC imports, 3) OPEC infighting and Saudi Arabia acting unilaterally to flood the market, 4) a conspiracy theory that Saudi is acting as a pawn for the US to bring down oil prices and hurt Russia, and 5) Libya’s production re-entering the market after a period of internal strife.

CIMB adds that the likely effect is reduced offshore capex, which would not be good for rig order flow. That is not new but could get more ugly. If the new normal for oil price is now US$80/bbl, order flow for KEP and SMM deepwater vessels will struggle. Smaller O&M business model that use refurbished vessels ismore sustainable but day rates will also fall.

Ultimately, as for CPO stocks, biodiesel demand will cease to be viable and CPO prices will stay soft. These sectors have fallen the most, but have reasons for caution. Transport plays looks increasingly attractive.