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S&P Global Ratings lowers oil price assumptions through 2020

Believing the recent downward pressure on oil prices will not be going away anytime soon amid strong production figures, S&P Global Ratings reduced its price assumptions for U.S. and global crude benchmarks through 2020.

In an update released Jan. 3, S&P Global Ratings said it expects prices Brent prices to average $55 per barrel and WTI prices to average $50/bbl through the end of 2020. That is a decrease of $10/bbl from previously projected 2019 prices and $5/bbl lower than previous 2020 projections. WTI crude has traded in the upper $40s in the new year, settling at $47.09/bbl on Jan. 3, while Brent has been trading about $10/bbl higher than WTI in recent weeks.

S&P said a number of factors caused it and other industry observers to become bearish on oil prices for the foreseeable future. Among the concerns cited by the ratings agency were the trade dispute between the United States and China, the "unrelenting" increases in production from U.S. shales, and record production both Saudi Arabia and Russia.

"This had the effect of drastically increasing the amount of oil expected to be on the market," S&P said. Russia has agreed to join OPEC member states in production cuts of 1.2 million barrels per day starting in January, but those cuts will likely be inconsequential for the global market, the agency said, as U.S. production is expected to increase by 1.18 MMbbl/d in 2019. Much of that production increase, S&P Global Ratings said, is expected to come from the Permian Basin.

S&P also forecast U.S. natural gas prices to remain steady, with an expected Henry Hub price of $3/MMBtu through 2021.

"We continue to see a fundamental shift occurring in the U.S. natural gas production profile," the group said. "Production has veered from the Southwest and Rockies to the prolific and economic Marcellus and Utica shale plays in the Northeast. We expect the significant build-out of takeaway capacity that is continuing to occur, will lead to further narrowing of the differentials and lead to ongoing production increases."