Moody’s Investors Service today revised upwards its price forecast for oil this year on the back of recent uptick in rates.
“Moody’s assumes a medium-term oil price band of USD 40 to USD 60 per barrel for both WTI and Brent crude and upwardly revised its shorter-term oil price estimates for these crudes to USD 40 in 2016, USD 45 in 2017 and USD 50 per barrel in 2018,” the rating agency said today.
In March, Moody’s estimated oil prices to be around USD 33 per barrel in 2016, which will rise to USD 38 next year and to USD 43 in 2018.
In a release titled ‘Moody’s: Challenging conditions for oil-related entities remain unchanged despite near-term price rebound’, the rating agency said its medium-term outlook for the sector remains unchanged.
“In the energy sector, the recent uptick in price levels provide only moderate relief from the underlying stress,” said Moody’s Senior Vice President Terry Marshall. “We have seen a significant deterioration in the credit profiles of many energy companies that were largely capitalized in an environment of much higher oil prices — around USD 100 a barrel — and are now grappling with cash flows that remain mismatched to their debt load.”
Similarly, Moody’s noted that adjusting to structurally lower oil prices will remain a medium-term fiscal and economic policy challenge for most oil-exporting sovereigns.
Moody’s underscored that while the near-term price gains have prompted an upwards revision of oil price estimates, the fundamentals that underpin its medium-term outlook — a key consideration for estimating financial performance and ratings of companies and countries — remain weak.
“The steep fall in oil prices has had material implications for the economic growth and balance sheets of countries that are largely dependent on oil and gas to drive their growth and finance their expenditures,” said Moody’s Managing Director Anne Van Praagh.
Moody’s noted that its current issuer ratings — for both corporates and sovereigns — address the range in which it expects prices to move over a multi-year outlook, rather than short-term estimates, and incorporate the balance of credit risks around that expectation.
As a result, Moody’s anticipates no immediate change to corresponding ratings as a result of the price estimates revision.