Oil Risks Revealed at Maersk as Nordea Warns of `Toxic Cocktail'

  • Maersk shares off to worst start to a year for over 2 decades
  • Nordea says stock is now more sensitive to oil than shipping

A.P. Moeller-Maersk A/S is a conglomerate with about 900 different divisions, but investors only really need to worry about one number in 2016: the price of oil.

The owner of the world’s biggest shipping line is being battered “by a toxic cocktail with challenges in both the oil and the container division,” Stig Frederiksen, an analyst at Nordea in Copenhagen, said by phone. But “it’s now become the oil price that’s the main driver for Maersk’s share.”

Maersk’s stock lost 9.8 percent in the first week of 2016, its worse start to a year since at least 1992. Brent crude was down by roughly as much last week. Maersk shares will probably be driven by the price of oil “for a while,” Frederiksen said. “We think that will be the case for 2016.”

Shares in Maersk pared gains and were trading little changed as of 12:28 p.m. in Copenhagen, compared with a rise of 2.4 percent earlier in the day.

For now, most analysts expect oil to rise by the end of the year. Brent crude, which traded at about $34 a barrel on Friday, will end the year at about $60, according to the median of estimates compiled by Bloomberg. Then again, a year ago, analysts thought oil would end the fourth quarter of 2015 at almost $80 a barrel.

Analysts at Danske Bank don’t see any imminent recovery in the price of oil. “We expect oil prices to stay low for longer but to stabilize in 2016 as inventory build-up is reduced,” according to a report published on Monday by Thomas Harr, Danske’s global head of FICC research.

Maersk Oil, which mainly explores in Qatar and in the North Sea, has set its break-even level at about $55 barrel. A series of job cuts may have helped reduce that figure, though it would still be “a lot higher than the current oil price,” Frederiksen estimates.

“Maersk Oil will definitely lose money in 2016 if oil prices stay at this level,” he said. “It looks like it will be a very tough year for” the company.

Meanwhile, Maersk Line will stay profitable in 2016 thanks to efforts to optimize its so-called load factor, but container volumes won’t recover significantly, Frederiksen said.

“We haven’t really seen a situation like this for Maersk in recent history, where both units are hit so hard,” he said.

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