Oil and Gas: Singapore Petroleum Company Limited

Singapore Petroleum Company Limited (SPC) was founded in 1969 as a refining company and now has expanded to an integrated oil and gas enterprise with presence in Australia, Indonesia, China, Taiwan, Thailand and Vietnam. SPC’s business activities are oil and gas exploration and production. It also refines, distribute, market of refined products. In Singapore, SPC provides quality products and excellent services in the retail market through its fuel stations.

SPC holds a 50% interest in the Singapore Refining Company (SRC), a world-class refinery with a nameplate capacity of 290,000 barrels per day. SRC resides on Jurong Island, the petrochemical hub of Singapore. SRC maintains its reputation as a supplier of quality refined petroleum products through continuously upgrading of its capabilities.

SPC was one of the first companies in Singapore to be granted Approved Global Trader status. Its oil trading activities include the buying and selling of crudes, feedstocks and products to an established network of customers.

The price of crude oil started its bull rally early in the year 2007, where price of crude oil was around US$50 per barrel and in one and a half years later in early July 2008, price of crude oil rocketed to US$145 per barrel. Price of SPC was around SG$4.10 in early 2007 and climbed to a peak of SGD8.80 in October 2008. The price more than doubled in less than a year. When price of crude oil peaked in July this year, the price of SPC was at around SG$7.00.

The price of crude oil then started to decline to US$116 per barrel today (20% decline) and price of SPC in the Singapore Exchange closed at SG$5.36 (23% decline from July’s price of SG$7.00). SPC’s price is heavily dependent on the price of crude oil.

Technically, the price of SPC is in a down trend because pivot highs and lows are getting lower and the price is way below the short to long term moving averages. The short term 30-day moving average is currently at SG$5.97. The momentum indicators like RSI and Momentum are showing bullish divergence. This indicates that the price may have found some support.


Daily SPC chart as at 29 August 2008 using NextVIEW Advisor

However, if we look at the price chart of crude oil, Support level is at US$105 to US$110 and therefore, there is a potential of crude oil price fall to this level. We may expect SPC share price to do the same as well.

Here are some recent fundamental developments for this company. On the 21st of August, Kim Eng Securities suggested a technical buy because of price being oversold. On 7th of August, Merrill Lynch which has a buy call with a SG$10.00 target adds SPC to Asia-Pacific most-preferred oil stocks. On 29th July, SPC announced flat second quarter net profit because higher processing costs and taxes offset improved refining margins. On 28th July OCBC Investment Research suggests SPC to have further downside with support at SG$6.20.

Strong support level is at SG$5.20. If price falls below this level, we may expect further correction. At the meantime, with price near support level, it may be provide good opportunity. Current price is SG$5.36 and since that crude oil price is expected to fall a little more, SG$5.20 to SG5.30 seems to be a lower risk entry price, with SG$5.18 as the support failure level. If price is able to be supported and rally upwards, we may expect it to climb to the down trend resistance level at SG$6.50.

Commentary and article by Benny Lee