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The Long Sunset for Oil Rig Demand?

Different industry have different length of business cycle.

I can still remember one acquaintance of mine observe closely that the shipping up cycle usually takes place 4 years and down cycle 2 years.

He may not be wrong, but in recent times, the shipping supply was so out of wack that the downturn lasted longer than normal. The global slowdown and  challenging economic situation does not help as well.

If the stock that you buy, depends very much on getting the cycle correct, then it is a tough endeavor.

Oil Rig Orders Historical from 1975 to 2016

In such a scenario, it is better to have good sensing what is a normal cycle. The above annual order graph is not new to me. I saw one from an old report shortly after Keppel and Sembcorp fell.

What shocked me was that I didn’t know the cyclical nature could be this long.

My sensing then was, better be safe than sorry. Be a keen observer rather than buy and observe.

Macquarie notes that there are still rigs under-construction. They also convey that unlike the situation in 2009, the overall fleet in existence (and underutilized) is very young.


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ThumbTack Investor

Wednesday 18th of January 2017

Hi Kyith

Thanks for this! I've previously looked at the oil cycle too, but havent had it out in a nice chart like this. Boustead's FF Wong has previously warned in Boustead's ER that his own take is that the down cycle will last much longer than what most market participants are currently anticipating... This post kinda illustrates it all. Definitely good to know. Agree that it's better to be a keen observer at this stage, rather than jump in thinking that you're "buying when everyone else is panicking."



Thursday 19th of January 2017

Hi TTI, it is also interesting that we have not started seeing some mergers and acquisitions taking place (perhaps the small ones from Keppel and SCI) FF Wong, have not started buying as well (though it should be noted that just like the smelter deals, not all his deal will work out)

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