In the first week of 2021, North Sea Brent surged to US$70.73 per barrel initially on Jan 6, the commodity’s highest level since Sept 2020, but fell back to US$53 per barrel during the afternoon in London. As at Jan 7, North Sea Brent is at US$54.43 per barrel. The 10-year US Treasury Yield meanwhile rose above 1%, closing at 1.09% on Jan 7.
In Singapore oil plays are few and far between. During the oil boom of the early 2000s, investors played the theme through capital goods, such as oil rigs. At one point, Keppel Corp and Sembcorp Marine (SCM) were the world’s largest and second largest producers of jack-up rigs.
SEE: STI up 0.26% on slowdown in economic contraction in 2020
Now, in the wake of global warming and a focus on sustainability, Keppel and SCM have pivoted to producing support vessels and rigs for offshore wind farms, FPSOs (floating, production, storage, offloading vessels) and FLNG carriers (floating liquified natural gas).
Among the duo, Keppel is a better long term bet. Its chart shows its quarterly momentum rebounding off its own moving average. Prices have been entrenched within a narrow range since mid-Nov 2020. A burst of volume is required to take prices out of the resistance/breakout area at the $5.40-$5.50 range. That materialised on Jan 8 with prices closing at $5.63. Although prices fell to $4.10 in Sept 2020, the upside from the breakout above $5.40 is at $6.40 to $6.60. Support should be raised - from $5.23 at the 200-day moving average - to $5.40, at the previous breakout level.
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Sembcorp Marine, now a penny stock, rose on the back of a surge in volume on Jan 6, and it has continued rising. While intuition may indicate this is not sustainable, short term indicators have just turned up. Directional movement indicators, which had been neutral till the start of 2021, have started to turn positive.
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That should support a price advance to $0.26. Prices won’t rise immediately to $0.26, which represents a 60% gain on SCM’s last done price of $0.164 as at Jan 7. Prices would probably ease when overbought pressures build up. It may even be that prices are in a multi-month base formation for which $0.26 could be the upper bound. As such, the downside is likely to be limited to $0.14. Risk versus reward points to greater probability of reward.
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The Straits Times Index has broken out of the tight two-month sideways range of 2,795 to 2,900. Short term indicators have turned up but they have been volatile and ambiguous through Dec. It is the quarterly indicators that had been resilient through Dec and strengthened through the initial trading sessions in Jan. Add to that a surge in volume, and the breakout appears to be good. The moving averages stayed positively placed. The breakout should provide the impetus for the STI to test the Jan 2020 high of 3,282.
