Global rating agency Moody's on Wednesday changed its outlook for the global oil and gas sector from negative to stable, driven by an expected budding recovery through June 2021 following an extremely weak second quarter.
After recovering from lows reached in April 2020, Moody's Investors Services forecast that oil prices will remain around $40-$45 per barrel in 2021, well below pre-pandemic levels, with volumes remaining largely flat through the end of June 2021.
While the downstream operations of integrated oil and gas companies will benefit from rising demand for refined products through the second quarter, the agency said it still expects demand to remain weaker than the levels seen in 2019 well into 2021.
The agency said the integrated oil and gas companies would benefit from the cost-cutting efforts they are undertaking in response to the coronavirus pandemic. “However, companies may not be able to sustain some of these additional savings once oil prices meaningfully increase. There is also scope for further cuts in unit production costs.”
Martin Fujerik, senior analyst at Moody's Investors Services said that "changing the outlook on the global oil and gas sector to stable reflects our anticipation of gradual recovery, with cost-cutting measures in place to bolster earnings. While most companies had planned to make significant cost savings prior to the pandemic, they have now stepped up their efforts, which will help industry earnings in the coming four quarters."
The agency also underlined that the outlook could turn positive if the economic recovery lifts oil prices into Moody's medium-term price range at between $45 and $65 per barrel.
“Signs that the industry is heading back toward positive free cash flow (FCF) would also be a welcome change,” it added.
The agency also stressed the possibility of a negative outlook if oil prices meaningfully decline from present levels on a sustained basis or lockdown measures are reintroduced, which would pressure demand for refined products.
By Sibel Morrow