SINGAPORE - Singapore's offshore sector is expected to maintain its bullish outlook into the first quarter of next year at least, supported by constrained global supply due to years of underinvestment, according to UOB Kay Hian analyst Adrian Loh.
Mr Loh said he was maintaining his "overweight" recommendation for industry rig building heavyweights Keppel Corp and Sembcorp Marine, setting a target price of $10.11 and 15.6 cents, respectively, for the two firms.
In a research note published on Tuesday (Aug 30), he said the rig market, particularly the semi-submersibles segment, continued to gain strength this year with higher utilisation and day rates.
He said the supply-demand dynamics continue to shift positively in favour of rig owners due to the lower supply of rigs that had continued on a year-on-year basis, with the global offshore rig industry seeing a 7 per cent decrease as at Aug 12 this year.
He added that lower supply was seen across all segments of the sector, with semi-submersibles registering the largest decline in percentage terms falling 12 per cent year on year to 106 rigs.
"In our view, this is positive as the extraction of excess supply should allow utilisation and day rates to continue to further firm up going forward."
Mr Loh noted that demand for production assets had a significant upside over the next few years, which would provide support for Keppel Corp and Sembcorp Marine.
Rystad Energy, an independent energy research and business intelligence company, said offshore investments this year are set to increase 7 per cent year on year from US$145 billion (S$202 billion) to US$155 billion.
Mr Loh said: "In addition, we highlight that the US$150 billion of greenfield projects sanctioned in 2021 will likely be repeated in 2022, thus underlining the positive outlook for the marine sector in the near to medium term."
He said UOB Kay Hian expects oil prices to be well supported above the US$100 to US$110 range, noting that top oil exporter Saudi Arabia said last week that Opec could be ready to cut output in a bid to stem the recent decline in prices.
Prices have dropped in recent weeks to around US$95 a barrel from as high as US$120, on fears of a Chinese economic slowdown and a recession in the West.
The benchmark Brent crude contract was trading at around US$102 a barrel on Tuesday just before US markets opened.
Mr Loh said: "This, together with Opec spare capacity close to historic lows, and large scale gas-to-oil switching taking place in Europe due to a lack of Russian gas, oil prices will remain high in the near to medium term."
He added that an additional Russian oil embargo that would come into effect on Dec 5 will effectively stop ships from carrying Russian oil, and insurance coverage on Moscow's energy supplies would further exacerbate the tight supply.