Oil prices will continue to hover between $40 and $60 per barrel in 2018 despite the extension of the production cuts led by the Organisation of Petroleum Exporting Countries through the end of the year, Moody’s Investors Service has said in its 2018 credit trends report for the global Oil and Gas industry.
It said higher prices within or above that range would see supply growth as countries would lessen their compliance with production quotas and the US shale production continues to increase. Abundant supplies of the US Natural Gas will constrain prices, even while demand goes up, according to the report.
“Political unrest in the Middle East, alongside assumptions of OPEC extending its agreement to cut production, helped to bolster Oil prices in late 2017,” said the Moody’s Senior Vice President, Terry Marshall.
“Even with these factors offering a boost, prices will likely remain range-bound, and possibly volatile, on a combination of increasing the US shale production, reduced but still significant global supplies, and potential non-compliance with agreed production cuts — especially if demand growth is more tepid.”
After strong capital investment in 2017, North American exploration and production companies would focus on boosting capital returns in 2018, though greater capital discipline would rein in this growth thereafter, Moody’s said.
It said E&P companies would be aiming for profitable growth within existing oil acreage and cash flow, with improvement favouring companies with the greatest exposure to the best acreage and producers in the Permian Basin leading the way.
The credit rating agency said the global Oilfield services industry would continue its recovery from the oil price slump in 2018, though the health of the sector would remain frail.
It said, “Higher utilization of equipment would help improve pricing, but supply would align more closely with demand only later in the year, as current oversupply diminishes. Oilfield services companies will face ongoing pressures from customers, reactivation and upgrade expenses, and higher labour costs.”
According to Moody’s, mergers and acquisitions will be strategic and occur increasingly between larger companies across the Oil and Gas industry in 2018, following the 2017’s tactical asset acquisitions, divestitures, and swaps.
“Valuations will rein in larger mergers in the E&P sector, even as the M&A lags in the oilfield services and midstream sectors. Independent E&P firms will be particularly attractive to larger independent and integrated oil companies,” it said.