Lower oil prices no silver bullet for Singapore's economic woes: analysts

The transportation sector may have missed out on the massive energy discount.

On a normal scenario, Singapore might’ve been one of the winners from the oil war between the Organisation of Petroleum Exporting Countries (OPEC) and Russia, analysts revealed. But the COVID-19 outbreak and its effect on people’s purchasing power has sunk this pathway.

Global oil prices dived 30% after talks of production cuts between Organisation of Petroleum Exporting Countries (OPEC) and Russia deteriorated. As of the evening of March 9, oil prices at the Brent Crude and WTI Crude Indexes are riding at US$30-36.

Markets plunged overnight when stocks opened on Monday, and Singapore was not spared—with the Straits Times Index (STI) falling 6% in one day.

Also read: STI opens with 3% drop over oil mayhem fallout

Countries that import energy and oil, such as China, Indonesia, Philippines, Vietnam, and even Singapore, might benefit from the falling prices, Peter Kiernan, lead analyst for energy at The Economist Intelligence Unit (EIU), told Singapore Business Review. “When importing oil is cheaper then it would have a positive impact on their balance of payments,” he noted.

But it won’t be enough to help cushion the ill effects of the COVID-19 outbreak and slowing global economies. “You have to also recognise that if GDP growth still lowers a lot to the point where a lot of economies are in recession, then these countries can't export as much because the demand isn't there. So it's not a silver bullet or anything like that,” Kiernan added.

The biggest miss goes to Singapore’s transportation sector, who would’ve been the clear winner given the cheaper energy costs, according to Song Seung Wun, economist, CIMB Private Banking Singapore. But the lack of passengers still spell trouble for their profits.

“If not for the COVID-19 virus outbreak and the drag from the fear factor on the global demand, it would have been easy to draw up the usual list of who are the winners and losers from the latest oil price war. A clear winner would be the transportation sector with consumers and businesses benefiting from cheaper energy costs,” said Song.

“Will the cheaper oil help the transportation sector? Airlines are already facing huge challenges as passengers are staying away out of coronavirus fear. As long as the fear remains, the cheaper cost of fuel only helps at the margins,” he added.

Also read: SIA expands list of flight suspensions

Other sectors to be massively affected by the fallout are Singapore’s petrochemicals, petroleum (oil and gas) and the marine and offshore sectors, said Christian de Guzman, senior vice president, sovereign risk group, Moody's Investors Service.

“Singapore’s petrochemicals, petroleum (oil and gas) and the marine and offshore sectors were already faced with weaker demand for their products; as such, lower oil prices serve to further exacerbate challenges to profitability and creditworthiness, which ultimately could dampen employment in these sectors,” he further noted.

Nevertheless, employment in these sectors comprise only a very small share of total employment, noted de Guzman, as COVID-19 continues to reign supreme as the biggest risk to the economy.

“We continue to see a prolonged outbreak leading to global, self-sustaining recessionary dynamics as a bigger risk affecting Singapore, given its reliance on exports and outward-oriented services, such as transportation, logistics and tourism.”

Already, three sectors in Singapore are feeling the investor jitters: offshore, banking and real estate. As of late Monday afternoon Sembcorp Marine saw a 9.04% decline in stocks, followed by DBS at 8.04%, and HongKong Land at 7.14%.

As a result, Natixis APAC chief economist Alicia Garcia-Herrero said, "Singapore will probably edge into recession in 2020 as other consumption related sectors are also hit by the coronavirus."

Meanwhile, the property sector will also likely see a shift in buyer interest as investors move to reposition their portfolios, noted Knight Frank Singapore’s head of research Lee Nai Jia.

In fact, this might just drive more interest for luxury properties and exclusive GCBs.

“On the one hand, we may see owners cashing out their property assets to purchase properties or equities that offer good value due to the drop in prices. On the other hand, the luxury apartments and exclusive GCBs are likely to see more interest. The value of these properties tend to hold better due to limited supply,” explained Lee.

Also read: Luxury homes flourish amidst renewed vigour from ultra-rich foreign buyers

“At the other end of the spectrum, we are likely to see more buyers seeking mass market projects that offer value and are attractively priced,” she concluded.

No price recovery is expected in the near term, according to EIU’s Kiernan, who said that prices would likely stay in the lower 30s for the next couple of the months.