Moody’s Investors Service has lowered its price assumptions for Brent crude and West Texas Intermediate (WTI) crude to reflect increases in oil production coupled with muted demand. The rating agency has maintained its price assumptions for North American natural gas, reflecting continued strong natural gas production and demand from electrical generation.
Moody’s lowered its price assumption in 2015 for Brent crude oil, the international benchmark, to $55 from $60 per barrel and for WTI crude, the North American benchmark, to $50 from $55 per barrel.
“We expect prices to rise only gradually in 2016, but not enough to keep pace with rapidly expanding production,” said Steve Wood, a Moody’s managing director of corporate finance. “In addition, there is the risk that the recent deal between international parties and Iran could lead to an increase in the country’s exports, which would further weigh on prices.”
In Moody’s Aug. 7 report titled “Rise in Oil Inventories Compounds Risk of New Iranian Crude Exports,” Moody’s expects prices for Brent crude to average $55/barrel (bbl) in 2015, and WTI crude to average $50/bbl – both of which represent $5/bbl reductions from Moody’s previous assumptions. These full-year prices assume second-half prices of about $47/bbl for WTI and $52/bbl for Brent.
Moody’s expects prices to rise only gradually in 2016, with WTI to average $52/bbl and Brent to average $57. Moody’s medium-term assumptions are unchanged at $75/bbl for Brent and $70/bbl for WTI. The medium-term price assumptions reflect Moody’s view that supply/demand equilibrium will eventually be reached around $75/bbl for Brent. This price would support development of the world’s most expensive oil – from oil sands and deepwater resources – in an environment of lower development costs than in recent years. However, Moody’s now expects this price to be reached only at the end of the decade.