Energy
Can the Oil Patch Overcome the Lower-for-Much-Longer Outlook?
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Prospects for a recovery in the energy sector have been getting dimmer in the past several weeks, and Tuesday’s announcement from Moody’s Investor Services darkens an already bleak picture. The ratings agency lowered its price assumption for Brent crude from $53 a barrel to $43 a barrel and its assumption for West Texas Intermediate (WTI) crude from $48 to $40. Moody’s expects the price of both benchmark crudes to rise by a paltry $5 a barrel in 2017.
As we have already noted, both Brent and WTI are already selling below Moody’s forecast averages for next year. The outlook does not improve much as the years pass either, according to the ratings agency:
Moody’s has also significantly reduced its medium-term price assumptions for Brent and WTI, to $63 per barrel and $60 per barrel, respectively. These reductions reflect the rating agency’s view that the supply-demand equilibrium will eventually be reached at around $63 per barrel for Brent, but only at the end of the decade.
That medium-term outlook is based on a “lower-for-much-longer” scenario and will be particularly harsh on oil and gas exploration and production (E&P) companies and oilfield services firms. Moody’s reaffirmed its negative outlook on integrated oil and gas companies, E&P firms and oilfield services providers.
The negative outlook for these sectors is based on an expectation that Iranian production will rise significantly in 2016 and that demand from China may slow as that country’s economy cools off.
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