Moody’s Investors Service lowered its 2016 price forecast for Brent crude on expectations of a continued supply glut and said additional production from Iran in case sanctions are lifted will offset expected declines in US production.
The ratings agency said it was lowering its price expectation by $10 to $43 per barrel, adding that it expected prices to rise by $5 in 2017 and 2018.
“OPEC oil producers continue to produce without restraint as they compete for market share, exacerbating the currently saturated markets,” said Terry Marshall, a Moody’s Senior Vice President. “Russia has also greatly increased production, and the possibility that sanctions will be lifted on Iran in 2016 could flood the market with even more supply.”
Moody’s has also significantly reduced its medium-term price assumptions for Brent and WTI, to $63 per barrel and $60 per barrel, respectively, the agency said in a statement, adding that these reductions reflected its view that the supply-demand equilibrium will eventually be reached at around $63 per barrel for Brent, but only at the end of the decade.
Moody’s said that these prices would still support some development of the world’s most expensive oil in an environment of lower development costs than in recent years.
The agency also sharply lowered its assumptions for natural gas liquids (NGLs), which tend to move in line with oil prices. Moody’s now forecasts NGL prices of $12 per barrel of oil equivalent (boe) in 2016, $13.50/boe in 2017 and $15/boe in 2018, with a medium-term price of $18/bbl, down from $25/bbl previously.
It said that global oil demand will rise by roughly 1.3 million barrels per day in 2016, an increase from its previous assumptions as oil consumption picks up in countries such as the US, China, India and Russia.
Ongoing increases in OPEC oil production have offset growing global demand and led to a rapid build-up of oil inventories. In October, inventories in the Americas, Asia and Europe stood at 4.4 billion barrels according to Energy Intelligence, compared with 3.8 billion-3.9 billion barrels in the last five years.
“Increasing consumption will not match the increase in supply,” said Marshall. “It will take time for these large global inventories to unwind, and combined with the possibility of new supply coming online from Iran, we expect oil prices to remain lower for a longer period than previously anticipated.”