Special report impact of plunging oil prices

Oil prices expected to stay low

A view of a Keppel Corporation shipyard on Jan 19, 2016.
A view of a Keppel Corporation shipyard on Jan 19, 2016.PHOTO: REUTERS

Demand slowing even as Iran is set to add more output to worldwide supply glut

The pessimism surrounding low oil prices is unlikely to let up anytime soon, given the still-swelling glut in crude supplies worldwide amid slowing demand.

Analysts expect oil prices to stay depressed for the next few months, especially with Iran set to add more output to the mix, now that it is free to export oil.

Global benchmark Brent slumped below US$30 a barrel last week - its lowest in more than 12 years - while Goldman Sachs has warned that prices could slide further to levels of around US$20.

Oil rose to US$32 a barrel last Friday following rumours of new monetary stimulus by central banks to prop up flagging demand.

For Singapore, the impact of lower oil prices is a mixed bag, say economists.

The price plunge has cost oil-producing nations US$2.5 trillion (S$3.6 trillion) in lost revenues - of which nearly US$460 billion has flowed to Asia, including Singapore, DBS chief economist David Carbon noted in a report last week.

 
 
 

UOB senior economist Alvin Liew told The Straits Times: "As a net oil importer, Singapore directly benefits from lower prices."

A spokesman for the Ministry of Trade and Industry (MTI) said that businesses here, in general, have benefited from lower utility and fuel-related costs as a result of weaker oil prices. Those in the transportation and storage sector, such as airlines and shipping companies, are likely to have seen lower operating costs, as have companies in the chemicals cluster, with their energy and oil-based feedstock costs reduced.

By contrast, the offshore and marine sector has been hit hard as oil majors and national oil companies continue to slash capital expenditure.

The pain is already being felt widely in the industry.

Keppel Corporation, for instance, reported a 44.2 per cent slump in net profit to $404.8 million in its latest quarterly earnings report.

Households, on the other hand, will be able to enjoy lower private road transport and utility costs as low oil prices will help to dampen the domestic prices of oil-related items, said the MTI.

Even so, Mr Frederic Neumann, co-head of Asian economic research at HSBC, believes that any positive effects on the economy from lower oil prices will be slow to show up.

"In the US, when gasoline prices fall, the consumer immediately spends the savings, heads down to the mall or buys a new car. It translates within three to four months," he noted.

"But in Asia, the transmission mechanism is different.

"Asian consumers don't necessarily rush to the mall because gasoline prices are down. The stabilising aspect comes through with a very long lag."

• Additional reporting by Chia Yan Min

SEE BUSINESS

A version of this article appeared in the print edition of The Straits Times on January 25, 2016, with the headline 'Oil prices expected to stay low'. Print Edition | Subscribe