Moody’s increases its oil price expectation

Alan Bailey

Petroleum News

Moody’s Investor Service has increased its medium term forecast for the price band for crude oil from a range of $40 to $60 per barrel to a range of $45 to $65. The company says that continuing compliance with oil production cuts led by the Organization of the Petroleum Exporting Countries coupled with strong global growth in oil demand are offsetting a rapid increase in U.S. shale oil production.

So far this year market conditions have resulted in benchmark oil prices averaging around $65 per barrel - additional U.S. shale oil supplies and other non-OPEC production will likely limit price growth beyond this level, Moody’s suggests. However, there are downside risks to the price, in particular the possibility of the OPEC-led production quotas not holding, the company says.

The differential between the Brent and West Texas Intermediate benchmark prices remains unusually high, but has been falling, as U.S. inventories decline and more U.S. oil is exported, Moody’s says. Oil prices towards the upper end of the expected range will encourage further U.S. shale oil production. Shale oil drilling efficiency has improved and the U.S. onshore rig count has more than doubled since it hit a low point in May 2016. Growth in shale oil production in response to a rising oil price will put a lid on the price, Moody’s says.

Moody’s also expects North American natural gas prices to remain within a range of $2.50 to $3.50 per British thermal unit, but the price band for natural gas liquids to rise from $20 to $30 per barrel to $19 to $27.

- ALAN BAILEY