Oil price 'the main driver' for Maersk's share price: Analyst

COPENHAGEN •A.P. Moeller- Maersk A/S is a conglomerate with about 900 different divisions, but investors really need to worry about only one number this year: the price of oil.

The owner of the world's biggest shipping line is being battered "by a toxic cocktail with challenges in both the oil and the container division", Mr Stig Frederiksen, an analyst at Nordea in Copenhagen, said by phone.

But "it's now become the oil price that's the main driver for Maersk's share".

Maersk's stock lost 9.8 per cent in the first week of this year, its worst start to a year since at least 1992. Brent crude was down by roughly as much last week.

Maersk shares will probably be driven by the price of oil "for a while", Mr Frederiksen said. "We think that will be the case for 2016."

Shares in Maersk pared gains and were trading 0.3 per cent higher as of 12.03pm in Copenhagen, compared with 2.4 per cent earlier in the day.

For now, most analysts expect oil to rise by the end of the year. Brent crude, which traded at about US$34 a barrel on Friday, will end the year at about US$60, according to the median of estimates compiled by Bloomberg.

Then again, a year ago, analysts thought oil would end the fourth quarter of 2015 at almost US$80 a barrel.

Maersk Oil, which mainly explores in Qatar and in the North Sea, has set its break-even level at about US$55 barrel.

A series of job cuts may have helped reduce that figure, though it would still be "a lot higher than the current oil price", Mr Frederiksen estimates.

"Maersk Oil will definitely lose money in 2016 if oil prices stay at this level," he said.

"It looks like it will be a very tough year for" the company.

Meanwhile, Maersk Line will stay profitable this year thanks to efforts to optimise its so-called load factor, but container volumes won't recover significantly, Mr Frederiksen said.

"We haven't really seen a situation like this for Maersk in recent history, where both units are hit so hard," he said.


A version of this article appeared in the print edition of The Straits Times on January 12, 2016, with the headline 'Oil price 'the main driver' for Maersk's share price: Analyst'. Print Edition | Subscribe