Moody's ups price outlook for crude oil to US$65

  • Oil & Gas
  • Wednesday, 14 Mar 2018

KUALA LUMPUR: Moody's Investors Service has raised its medium-term price band for crude oil to US$45-US$65 per barrel (bbl) from US$40-US$60/bbl.

The rating agency said on Wednesday the higher price outlook was due to continued Opec-led production restraint and strong global demand growth.

These factors have contributed to declining global inventories, offsetting rapid increases in US shale production.

Moody's also maintained its price band for North American natural gas at Henry Hub, the industry's chief measure of natural gas prices, at $2.50-$3.50 per million British thermal units (MMBtu), while raising the price band for natural gas liquids (NGLs) to US$20-US$30/bbl, up from US$19-US$27/bbl.

“Prices in the upper half of the oil price-band will encourage increased supply as US production grows and countries reduce compliance with their production quotas," said Terry Marshall, a Moody's senior vice President.

"Nevertheless, even with crude prices at the higher end of the new US$45-US$65 range in early 2018, we expect prices to stay within this range over the medium term amid better balance between increased production and growth in demand."

Moody's analysts look to medium-term expectations as the most relevant price considerations when assessing financial performance and ratings for corporate issuers and oil-exporting countries.

According to the rating agency, the emphasis on a range of outcomes within the price band helps to assess the resiliency to price volatility, and thus durability of credit ratings, for a given corporate of sovereign entity.

Moody's said the oil prices have firmed since Opec's November 2016 agreement to cut oil production by 1.2 million barrels per day (bpd), while non-Opec members, led by Russia, agreed to cut production by 558,000 bpd. 

Analysts note Opec's having achieved excellent compliance with its production restraint, with total cuts aided by Saudi Arabia exceeding its targets and Venezuela exceeding its targets because of domestic issues. 

Marshall said the result has been a decline in global crude inventories, which has contributed to higher oil prices.

Despite these various factors helping to boost commodity prices, Moody's believes prices will remain rangebound, and possibly volatile, amid increases in US shale production; reduced, but still significant, global supplies; and potential noncompliance with agreed production cuts – especially if growth in demand is more tepid.

Oil & Gas