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Alt Text

The U.S. Export Boom Goes Beyond Crude

While U.S. crude oil exports…

Alt Text

A Very Bullish Case For Commodities

Goldman Sachs has put forward…

World’s Largest Shipping Company Preparing For Another Oil Price Crash

Maersk Shipping Bankrupt

It was almost a year ago, when having tumbled in early 2015, oil proceeded to rebound strongly into the summer, where it traded at about $60 for three months, before U.S. production resumed resulting in the next big leg lower which culminated with this February’s drop to 13 year lows. At that point a comparable rebound to last year materialized, and just like last year, the pundits have emerged claiming that there will be no further downside. Incidentally, we covered this comparison previously in "For Oil 2016 Is Setting Up To Be A Rerun Of Last Year."


(Click to enlarge)

However, unlike last year, not everyone is (wrongly) convinced that this time the rebound in oil will be sustainable. One very prominent company that is already preparing for the next oil crash is the world's largest shipping company, Danish conglomerate A.P. Moeller-Maersk A/S (also known as Maersk). Related: 500,000 Barrels And $1 Billion In Losses: The True Cost Of Canada’s Wildfire

Maersk is perhaps best known for its pragmatic, even downright bearish outlook on the global economy. Recall that three months ago, the company admitted in its annual report that "demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels."

The company's CEO, Nils Andersen, told the FT in February that "it is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse but we are better prepared." Related: Shell’s Profits Plunge 83%

It is the risk that the current 60 percent rebound in oil prices from 2016 lows is just another temporary bounce that has forced Maersk to start preparing for the next oil crash. The company's CEO is confident that since the world keeps producing more petroleum than it can consume, it is "adapting its cost base to prepare for the risk of lower crude prices" according to Bloomberg.

As a result, Maersk's oil unit is already exploring bigger cost cuts than previously planned. "The price will obviously be driven by the balance between supply and demand and there will be oversupply for many months still,” he said by phone from Copenhagen. "It definitely can’t be ruled out that the oil price will fall again."

To be sure, Andersen is ultimately bullish on higher oil price... he is just not bullish on the path that oil prices will take to his higher price target: "I have previously said the oil price was too low, but it’s very plausible that the balance between supply and demand will continue to be unfavorable,” Andersen said. Related: The Shale Sector Just Got Two Critical Wins – In Two Different States

Recent cost-cuts by Maersk have drastically reduced its breakeven oil price: in its latest full year forecast, the company predicted it can now break even with oil at $40 to $45. It previously said oil needed to trade at about $45 to $55 in order to avoid a loss. "We’re happy we’ve reached the goal we set,” Andersen said. “We will definitely work on cutting costs even further."

As it continues to cut costs, we expect that Maersk will soon be profitable with oil in the $30, if not lower. Which is precisely the contingency Maersk is actively preparing for.

By Zerohedge

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Leave a comment
  • Greg on May 06 2016 said:
    Really? Is that why Maersk itself has recently taken a significant position in East African oil acreage from Africa Oil in Kenya, an oil development that only makes economic sense at prices North of $60/bbl? This capital allocation suggests that Maersk is actually extremely bullish on the oil price recovery, otherwise it would certainly not be going out of its way to purchase these assets.
  • mark on May 07 2016 said:
    Gotta love Internet news! They are hardly ever right with their predictions & I honestly believe they put fake information out there to benefit them or organizations they are in cahoots with! There's no accountability with Internet news! 2 years ago this time when oil was going up, they said it would hit 200$ a barrel.... and some investors made a lot of money off that news! (The ones that were putting the news out there) People were investing like crazy when it was about to drop! Now they are doing it on the flip side, when oil dropped to 26$ a barrel in February they said it would go down all the way to 15$. Lol. (Alot of money was made using that news too) Now they are saying this rally won't last, so they can make even more money. I agree with the previous comment, if they are so bearish about oil, then why are they investing in oil fields that have to have 60$ oil to be profitable? I call bs. Nobody truly knows what oil is going to do, or what opec is going to do, but the news can be manipulated to make money!
  • adec on May 07 2016 said:
    I like the comments by Gregg and Mark above. Some writers have their agenda.
  • Jim Decker on May 08 2016 said:
    I think Maersk has it right, but the author is reporting their BS rather than their strategy. They know that crude production is going down. Thus, they will have lower volume at lower prices- a drastic drop in revenue. They are wisely cutting costs and investing in oil production assets.

    That lower crude volume only means one thing for the rest of us- higher crude prices.
  • SL-Wallah on May 09 2016 said:
    I agree with all three comments above. This situation is so unpredictable and to bank on such information in order to invest is overly risky. It will take quite a while to stabilise the crude prices and much depends on the supply and demand and unpredictable supply side of it is makes one`s knees to shake when making decisions to invest in the oil industry.
  • kamakiri on May 13 2016 said:
    Too funny. ~$60 oil last year represented the period where oil prices were *least* manipulated by investors. Great comments above.
  • Jay on May 13 2016 said:
    Gotta wonder on the accuracy of the article if they can't even show a correct ship for the oil business. They picked a artist mis-conception of a Conex ship? Couldn't find a real picture of a VLCC?

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