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Moody's 2020 oil sector outlooks stable amid range-bound, volatile crude prices

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Moody's 2020 oil sector outlooks stable amid range-bound, volatile crude prices

The Moody's 2020 outlooks for the producer and oilfield services sectors are stable amid forecasts for crude oil prices to remain range-bound but volatile.

Forecasts for West Texas Intermediate and Brent crude oil prices span $50 per barrel to $70/bbl and $55/bbl to $75/bbl, respectively, through 2020, Moody's said in a Dec. 12 report.

Price volatility will persist amid uncertainties surrounding OPEC producers' response to rising non-OPEC production into 2020, a possible increase in U.S. crude oil production as new pipelines come into service, a slowing outlook for global demand growth, ongoing trade tensions between the U.S. and China, and widening Canadian differentials, the analysts said.

As a whole, "energy companies will struggle to access capital markets, weakening the industry's overall liquidity, increasing its cost of capital and raising its default risk," Moody's said.

The outlook for the exploration and production sector, however, is stable as Moody's forecast earnings growth in the low single digits even as volume growth slows to 5% to 7% amid weak capital spending.

Further consolidation among producers is possible in 2020 as the sector remains focused on capital discipline and free cash flow generation, Moody's analysts said.

Meanwhile, producers will continue to take advantage of efficiency gains and low-cost oilfield services as oilfield services and drilling companies limit pricing amid oversupply and lackluster demand.

A 2% to 4% decline in producer spending is forecast to prolong credit stress for oilfield services companies, particularly smaller private companies, Moody's said.

The analysts' outlook for the oilfield services sector is stable as international market growth offsets ongoing weakness in the U.S. land market.

Demand for oilfield services in the U.S. onshore market, and the rig count, will remain flat to the levels at the close of 2019, although there is some potential for additional weakness should producers steepen spending cuts, Moody's said. Utilization rates are forecast to see little improvement amid an excess supply of equipment and lack of pricing power, straining operating margins, the analysts said.

International market demand growth is forecast to slow from the 2019 pace but continue as higher Brent pricing drives the international land rig count higher, mitigating weakness in the U.S. land market, Moody's said.

For offshore drillers, short-term contracts will keep utilization up, but companies will continue to see credit quality suffer under high debt burdens, Moody's said.

Improved day rates will depend on companies' ability to sign long-term contracts, Moody's said.