2016 is drawing to a close. As the curtains come down, I thought it would be a good idea to have a series of articles looking back at the events of the year to draw lessons from them. In the first part of this series, I wrote about oil price predictions for 2016 and how some analysts were calling for crude oil prices to fall to as low as US$16 per barrel in this year. I also wrote that “With less than a month to go for 2016, crude brent prices are trading above US$54. And oil prices did…
2016 is drawing to a close.
As the curtains come down, I thought it would be a good idea to have a series of articles looking back at the events of the year to draw lessons from them.
In the first part of this series, I wrote about oil price predictions for 2016 and how some analysts were calling for crude oil prices to fall to as low as US$16 per barrel in this year. I also wrote that “With less than a month to go for 2016, crude brent prices are trading above US$54. And oil prices did not even reach anywhere near US$20.” The dire predictions did not happen.
Outside looking in
Thing is, there could be a better way to go about this whole oil price thingamajig. Here are three hints that appeared this year.
For the first hint, here’s what Chow Yew Yuen, the chief executive for Keppel Corporation Limited’s (SGX: BN4) Offshore and Marine business division, said during the company’s 2015 fourth-quarter earnings briefing (this took place in January 2016 when oil prices were around US$40):
“Right now, oil prices have dropped to the $40 range. Whether the recovery is V-shaped or the U-shaped, and how long it takes, is anybody’s guess.”
Chow has spent over thirty years in Keppel Corporation’s Offshore and Marine division. As the head of that business, Chow should have great insight on the workings of the oil and gas industry. Despite this, he noted that nobody can guess what level oil prices will return to or how long it would take for oil prices to recover.
That says a lot. But Chow is not alone in this. Here’s another hint. Around the same time, SembCorp Industries Limited’s (SGX: U96) head Tang Kin Fei shared his view on the direction of the price of oil. He mused:
“Nobody will know when the oil and gas market will recover, that is the big crystal ball. If I know the answer … That’s really difficult to predict.”
For context, SembCorp Industries has a majority stake in SembCorp Marine Ltd (SGX: S51), another major player in the oil and gas arena. Like Chow, Tang said that neither he nor anyone else knows where oil prices will be.
For the final hint, we turn to Wee Ee Cheong, the chief executive of United Overseas Bank Ltd (SGX: U11). The bank provides financing to several oil and gas companies. For perspective, UOB reported a total exposure of S$9.1 billion to the oil and gas industry in the second-quarter of this year.
Wee noted in early 2016 that oil prices had fallen from over US$100 per barrel in mid-2014 to below US$40 per barrel in end-2015. He said:
“This is a very unfortunate thing. Who can predict the oil price – from $100 over dollars to $30 dollars? Right? So, nobody is able to do that.”
As you can see, Wee commented that nobody had predicted the fall of oil prices in 2015.
So in all, we have three key business people related to the oil and gas industry who have all shared the same message: That nobody can predict the movement of oil prices.
Therein lies another lesson for investors for 2016: If even the people inside an industry have no idea where oil prices will be, there’s a good chance that people outside the industry will have no idea as well. As investors, we might want to take our cues from the three hints above and think twice about shaping our portfolios according to oil price predictions.
For more (free!) investing tips and tricks and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.
Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.