Ratings and investor service firm Moody's has lowered its price estimate for Brent crude in 2016 to US$33/bbl, from $43/bbl, and suggests crude "will remain well below $50/bbl through 2018."
West Texas Intermediate has also been lowered to $33/bbl, from $40/bbl.
The leveling of the two bench marks reflects market prices since the US lifted its ban on oil exports.
"But," says Moody's, "our themes behind the price estimates remain the same since December: global oversupply, very high inventory levels worldwide, and additional Iranian production coming on line and offsetting the US reduction in shale production.
"We believe oil prices will recover more slowly as shown by our crude price estimates remaining well below $50/bbl through 2018. "There is also a risk that oil prices could move even lower than our estimates."
Moody's now has 130 integrated oil, exploration and production and oilfield services and drilling firms on review for downgrade, in addition to 36 exploration and production companies put on review for downgrade in December 2015.
It says: "For E&P companies and the upstream operations of integrated oil companies, cash flow declines directly with oil prices, weakening credit metrics and increasing their negative free cash flow. The drop in oil prices and corresponding capital market concerns will also raise their financing costs and refinancing risks.
"Many companies will find it a challenge even to internally fund sustaining capital investment in the next couple of years. Integrated oil companies—the “majors”—get some benefit from their downstream operations, selling fuel and refined oil products, but their upstream segments generally make up a much larger share of their operations.
As E&P and integrated companies substantially cut their capital spending, they will add further pressure on the OFS segment, weakening their pricing and exacerbating the industry’s overcapacity in rigs and equipment.
"The OFS industry was building new vessels and bringing new capacity into the market just as we entered this collapse of oil prices, and now those companies are under significant financial stress—even the US-based companies that operate globally. Smaller OFS companies will struggle with their debt covenants and liquidity, but even the larger OFS companies will experience rising leverage and less financial flexibility."
Moody's says its expectations around the growth in demand for oil remains the same, at a growth of about 1.3 MMb/d in 2016. But, it says the global supply of oil is still well in excess of demand. "Even with global demand for oil growing by roughly another 1.3 MMb/d in 2016, additional oil production from Iran will exceed the likely decline of US production, which we expect to decline by about 500,000 b/d in 2016, following large-scale US shale drilling reductions."
Moody's adds: "The world market is oversupplied for a number of reasons and we don't see a price recovery during our rating horizon."
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