3 Reasons For Investors To Be Optimistic About The Oil And Gas Industry In Singapore

It would be an understatement to say that there have been violent movements in oil prices over the past three years. In that window of time, we have seen oil prices fall from a height of over US$120 per barrel to less than US$30 per barrel.

At present, oil prices are around US$50 per barrel. Although that’s a significant gain from the lows of less than US$30, it also represents a huge decline from the high. The situation has not been easy for the oil and gas companies in Singapore. Many of them, in particular those with high debt levels, are struggling to survive at the moment.

I thus thought it would be interesting and useful to explore the reasons for optimism as well as pessimism about the oil and gas industry in Singapore. In this article, I would be sharing the positive shoots that I’m seeing. For the negative side of things, you can check out here.

Production cuts by major market players

One of the most significant positive news for the oil and gas industry emerged in December 2016 when it was revealed that members as well as non-members of OPEC had agreed to cut their production of oil.

More recent developments suggest that oil producing countries from outside OPEC that are part of the deal have been keeping to their end of the agreement.

A reduction in the amount of oil produced could greatly improve the supply and demand balance of the fuel going forward. And if prices of oil are able to stabilize at a higher level, it might mean better prospects for oil and gas-related companies here in Singapore.

Government assistance

Another key reason for optimism is the proactive actions of Singapore’s government to help oil and gas companies here weather the storm.

recent rental rebate given by JTC to its tenants and lessees that belong to the offshore and marine sector is one example of how the government is providing aid. JTC is Singapore’s national developer of industrial infrastructure and it is the landlord of many industrial facilities utilised by oil and gas companies here.

Creditors’ willingness to negotiate

A company will only go bust if all doors to obtain financing from are shut on it.

We’ve seen that is not the case when it comes to oil and gas-related companies in Singapore. Their creditors are willing to continue providing support and to negotiate.

Singapore’s largest bank, DBS Group Holdings Ltd  (SGX: D05), is a good example. During the bank’s most recent earnings presentation in late October 2016, its chief executive, Piyush Gupta, said that DBS Group will continue supporting its clients in the oil and gas sector.

It’s worth noting that Gupta’s comment came after the bank had landed into abit of trouble due to its status as one of the major lenders of the fallen offshore support services provider, Swiber Holdings Limited (SGX: BGK).

This show of commitment by Singapore’s largest bank is a sign that lenders to oil and gas-related companies in Singapore are in no hurry to give up yet.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.