Moody’s cuts crude oil price es­ti­mates to $33/bar­rel as sup­ply glut con­tin­ues

Financial Mirror (Cyprus) - - FRONT PAGE -

Moody’s In­vestors Ser­vice cut its price es­ti­mates for Brent crude and West Texas In­ter­me­di­ate crude amid con­tin­ued over­sup­ply in the oil mar­kets and the risk of ad­di­tional sup­ply from Iran.

The rat­ing agency has low­ered its 2016 price es­ti­mate for both the in­ter­na­tional bench­mark Brent and the North Amer­i­can bench­mark WTI crude to $33/bar­rel. For Brent, this marks a $10/b re­duc­tion from it’s pre­vi­ous es­ti­mate, and for WTI, a $7/b re­duc­tion. Moody’s ex­pects that both prices will rise by $5/b on av­er­age in 2017 and 2018.

“OPEC coun­tries con­tinue high lev­els of pro­duc­tion in the bat­tle for mar­ket share, con­tribut­ing to the cur­rent oil glut de­spite mod­er­ate con­sump­tion growth by key con­sumers such as China, In­dia and the US,” said Terry Mar­shall, a Moody’s Se­nior Vice Pres­i­dent. “In ad­di­tion, we ex­pect the rise in Ira­nian oil out­put this year to off­set or ex­ceed pro­duc­tion cuts in the US.”

Moody’s main­tains its price es­ti­mates for North Amer­i­can nat­u­ral gas at Henry Hub at $2.25 per mil­lion Bri­tish ther­mal units (MMBtu) in 2016, $2.50/MMBtu in 2017 and $2.75/MMBtu in 2018. Moody’s also main­tains its price es­ti­mates for nat­u­ral gas liq­uids (NGLs) at $12/b of oil equiv­a­lent (boe) in 2016, $13.50/boe in 2017 and $15/boe in 2018.

On­go­ing in­creases in OPEC oil pro­duc­tion off­set grow­ing global de­mand of about 1.4 mil­lion bar­rels per day, ac­cord­ing to the US En­ergy In­for­ma­tion Ad­min­is­tra­tion, lead­ing to a rapid buildup of oil in­ven­to­ries.

“To­day’s large global in­ven­to­ries will still take time to un­wind and will con­tinue to drag on prices even de­mand picks up,” added Mar­shall.

Moody’s said price es­ti­mates are likely to be re­vised dur­ing the year based upon up­dated in­for­ma­tion on mar­ket fun­da­men­tals and fu­tures prices. For ex­am­ple, its $33 es­ti­mate of the av­er­age price re­alised per bar­rel dur­ing 2016 im­plies an up­ward trend from cur­rent spot prices to a price mean­ing­fully higher than $33 by year-end. Moody’s will likely lower this es­ti­mate if such an up­ward trend were not to ma­te­ri­alise over the next sev­eral months.

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