Link to Fitch Ratings' Report(s): Oil Prices to Remain High in 2018 on Geopolitics and Strong Demand;
Downside Risks Thereafter https://www.fitchratings.com/site/re/10033631
Fitch Ratings-London-June 13: Oil prices will remain relatively high for the rest of 2018 due to ongoing geopolitical tensions and strong demand, and despite indications from Saudi Arabia and Russia that they may start to increase production, Fitch Ratings says. However, marginal producers' full-cycle costs drive oil prices in the long term and we assume a gradual price fall to below USD60/bbl by 2020.
We have raised our Brent and WTI oil price assumptions for 2018 and 2019. Now we assume Brent will average USD70/bbl in 2018 and USD65 in 2019, compared to the previous assumption of USD57.5 in both years.
The revision reflects high year-to-date prices, Venezuela's production decline, continued geopolitical tensions, including the renewal of US oil sanctions on Iran, and strong demand growth.
Our long-term price assumptions, including for 2020, are unchanged at USD57.5/bbl for Brent and USD55 for WTI to reflect our view that the US shale industry should remain a marginal oil producer and should be able to meet a significant portion of global demand growth for the next several years. Higher-than-expected cost inflation may push prices above our long-term expectations; however, we believe per-barrel full-cycle costs have remained relatively unchanged so far. Much also will depend on whether producers would be able to preserve efficiency gains achieved so far as oil prices remain high. We do not expect this price deck revision to trigger multiple positive rating actions in our global corporate portfolio. However, the recent oil price recovery will alleviate the pain of very high-yield exploration and production companies, for which liquidity remains an important credit driver, and selective positive rating actions are possible for them. For more information on our oil price expectations and our latest UK National Balancing Point and Henry Hub gas price forecasts, see "Geopolitics and Strong Demand to Keep Oil Prices High in 2018, but Downside Risks Thereafter", published today and available from www.fitchratings.com, or by clicking the link above. Contact: Dmitry Marinchenko Director, Corporates +44 20 3530 1056 Fitch Ratings Limited 30 North Colonnade London E14 5GN Dino Kritikos Senior Director, Corporates +1 312 368 3150 Lucas Aristizabal Senior Director, Corporates +1 312 368 3260 Tatiana Kordyukova Senior Analyst, Fitch Wire +44 20 3530 1954 Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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