Oil market’s covid-induced disruption in the first half of this year will unsettle long-term energy consumption patterns in developed markets and heighten oil and gas price volatility, according to Moody’s.
It expects growth will slow for the industry, which now faces more uncertainty about future demand.
“We expect an uneven, extended recovery that depends on a gradual improvement in oil and gas demand, backed by rebuilding of global economic activity, especially in the key consumption markets of China, southeast Asia, and the US,” says Moody’s.
Rebalancing of the oil market will be led by the supply side, which will require the OPEC-plus group of producers to stay disciplined about production for at least two years to ensure that demand recovers more quickly than supply, it added.
Global OPEC-plus producers and non-OPEC countries jointly responded to the sharp drop in demand and prices by curtailing 10 million barrels (bbl) per day of oil supply in May— which is equal to about 10% of last year’s global oil production.
“We expect that oil prices will remain highly volatile, but will recover toward our medium-term price range of $45-$65/barrel. Some non-OPEC producers are more likely to bring their idled shale production back online if oil prices continued to improve toward $50/barrel,” Moody’s said.
“As demand for oil starts to recover, the global industry must also manage record inventories of both crude and refined products, which will delay the rebalancing,” it added.
Recovery in the natural gas market will also take time, despite a less severe jolt than oil. The US natural gas market will benefit from slower growth in oil production — and thereby less associated gas production this year.
But oversupplied global markets for liquefied natural gas will hamper growth in US natural gas exports in the medium term, and will slow the construction of new export facilities, making natural gas prices more volatile and capping an eventual recovery in prices.