Low oil prices raised financial risks for oil and natural gas companies amid the recent plunge in prices after OPEC+ failed to make a deal over production cuts last week, global credit rating agency Moody’s said in a statement on Tuesday.
Although the current price tumbles are "lower in severity" than the commodity price decline of 2015-2016, Moody’s said the situation is not "a structural shift at this stage."
“We expect that oil and gas companies will actively manage their liquidity in 2020, reducing capital spending and potentially reducing or suspending distributions to shareholders amid lower operating cash flow and limited access to capital markets,” said the agency.
The OPEC+ gridlock forces investors to move away from riskier assets, according to Moody’s.
The credit rating agency said low oil prices most directly affect the companies involved in exploration, production and oilfield services, particularly those that need refinancing over the next 6-12 months.
Moody's said it now expects the average price of American benchmark West Texas Intermediate (WTI) to fall outside its medium-term estimate of $50-$70 per barrel price range in 2020.
"While a modest price recovery is likely later in 2020, assuming the coronavirus is contained and economic activities start to normalize, overall 2020 price realizations will still be significantly lower than the 2019 average WTI benchmark price of $57 per barrel."
Saudi-led OPEC and Russia-led non-OPEC failed Friday on a deal to provide deeper cuts in their oil production levels.
Brent crude fell to $31.27 per barrel and WTI plummeted to $27.34 a barrel on Monday to mark their lowest levels since February 2016. Both benchmarks' daily loss of over 30% was the largest single-day percentage decline since the Gulf War in January 1991.
By Sibel Morrow