The Strategist

Maersk is ready to become profitable at $30 for oil barrel

05/10/2016 - 16:25

Almost a year ago, oil rebounded strongly after the fall at the beginning of 2015 summer. Within three months, it was trading at around $ 60.

Thorfinn Stainforth
Thorfinn Stainforth
US then resumed production once again, which ended with falling to 13-year lows in February. At this point, there was a rebound, comparable to last year's level. Experts reassured that further fall in prices would not happen.

However, unlike last year, not everyone is convinced that the current oil prices’ rebound will be sustained. One of the sceptics is the Danish business conglomerate AP Moller-Maersk A/S, which is already preparing for the next collapse of oil.

Maersk is known for its pragmatic outlook on the global economy. Three months ago, the company admitted in its annual report that "demand for goods transportation was significantly lower compared with what was expected." "This is especially true in emerging markets, as well as for a group of leading European traders", - emphasized the company.

In February, Maersk’s CEO Nils Andersen said:

"The situation is worse than in 2008. Oil prices are at a minimum of 2008-2009, and will remain there for a long time. So far, it seems unlikely that they will begin to climb. Freight rates are lower. The external conditions are much worse, but we are prepared better."

This points to a risk that the current of 60%-rebound in oil prices from the lows of 2016 is another temporary rebound. Precisely this made Maersk start preparing for the next oil dip. Now, the company is ready for spending cuts more than previously planned.

"The price will depend on the supply-demand balance. In addition, surplus will remain for many months. Of course, it is entirely possible that the oil price would fall again.", - said Andersen.

In its latest forecast for the year, the company predicted that profits may fall even at $ 40-45 price. Earlier, it stated that the oil, in order to avoid losses, should trade at about $ 45-55.

"We are pleased to have met the targets. We will have to continue working to reduce costs." - said Andersen.

Given the situation with the reduction of expenses, we expect that Maersk will soon become profitable with oil price of $ 30, if not lower – just under unexpected circumstances, to which Maersk is actively preparing. 


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