It has been more than 2 years since oil prices collapsed from around $80-$100 per barrel. Back then, Saudi Arabia decided against production cuts to hurt the shale producers. But it has now turned around and led OPEC to an agreement to cut production.
- Policy turnaround by Saudi Arabia indicates a strategy rethink. Iran (loggerheads with Saudi Arabia) is also part of agreement.
- Non-Opec members such as Russia also agreed to production cuts.
- As crude prices go up, oil majors earn more because cost of production remains unchanged. Offshore yards see higher demand for offshore rigs and vessels.
- But not everyone wins. Transport and logistics companies see higher fuel costs. Airlines are especially vulnerable. Consumers also have lower disposable income to spend on other goods and services.
How to invest?
- Prefer oil majors (Exxon, Shell, BP, Chervon) and offshore yards (Keppel and Sembcorp Marine).
- Avoid airlines (SIA, AirAsia), transport (ComfortDelGro) and Logistics (Singapore Post and CWT).
- Opec agreement collapse
- US shale producers (not part of agreement) ramp up production and push down oil prices again.