SINGAPORE (May 9): US President Donald Trump announced last night in Washington he will withdraw the US from an Obama-era nuclear agreement with Iran.
Going against advice from European allies, Trump said he would reimpose economic sanctions that were waived when the deal was signed in 2015.
Although the latest development could lend support to crude oil prices, OCBC analyst Low Pei Han notes that the oil market’s base case has probably priced in a Trump administration exit from the nuclear deal.
What is more closely watched is Iraq’s May 12 parliamentary elections which could have implications for the country’s energy policy.
“Market watchers are likely to see if the ultimate winner of the elections would have any impact relating to Iraq’s cooperation with the Opec agreement to curtail oil production,” says Low in a Tuesday report.
As at Dec 2017, Iran and Iraq each account for about 5% of the world’s crude oil production and geopolitical events relating to them will be closely monitored by the market.
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Meanwhile, fundamentals still point to potential upside risk in US shale oil production with rising oil rig counts.
This is also the year US oil production is expected to exceed Saudi Arabia’s.
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As at end March, total crude oil production in the US reached 10.4 million bpd and has continued to rise in the month of April.
Among the Singapore-listed stocks, Low says Sembcorp Marine is more sensitive to oil price movements though investors are advised to be nimble.
As mentioned in an earlier report on Apr 26, SembMarine is the only large cap oil and gas pure play in the Singapore space and hence a likely favourite for investors wishing to gain exposure to rising oil prices.
See: Sembcorp Marine reports lower 1Q earnings of $5.3 mil on lower contributions from platforms division, absence of one-off gain
See: Sembcorp Marine down but not out, say analysts
However, on a fundamental basis, its forecast ROE for this year and next are unable to justify higher P/B valuations. OCBC has a “hold” on SembMarine with fair value of $2.10.
Instead, OCBC prefers Keppel Corporation due to its diversified earnings base and less demanding valuations, giving it a fair value of $9.40.
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See: Keppel's 1Q earnings up 34% to $337.5 mil on divestment gain
See: Analysts divided even as Keppel climbs to highest quarterly earnings in recent years
As at 10.37am, shares in Keppel are up 10 cents at $8.13 or 15 times FY18 forecast earnings.
