Offshore drilling companies were hit on Monday after analysts at Deutsche Bank downgraded four companies in a re-evaluation of its stance on the sector.
Analyst Mike Urban said offshore drillers faced challenges ahead, as evidenced by a secular recapitalisation of offshore fleets and continued pressure in the floater market.
Companies may be "buoyed by seemingly strong rate fixtures", but Deutsche's analysts said it would be wrong to mistake a "wholesale recapitalisation of the offshore rig fleet for a more benign cyclical downturn".
"We see significant further deterioration in the offshore drilling market as relatively flat demand is met with a relentless surge of new supply," Mr Urban wrote in a note on Monday. "More problematic is the increasing likelihood that a huge chunk of the existing fleet will ultimately become impaired and/or obsolete."
Following the downgrades, Transocean fell 2 per cent to $39.48. Noble Corporation fell half a per cent to $27. Ensco fell 21 per cent to $50.52 and Diamond Offshore Drilling fell 1 per cent to $47.09.
The S&P oil and gas drilling index fell 1 per cent to 486.66.
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IMF - The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive financial conditions. These positive outturns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the U.S. economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the U.S. economy is beyond full employment.
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