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Moody's hikes crude oil price outlook as global market tightens

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Moody's hikes crude oil price outlook as global market tightens

Moody's has hiked its crude oil price outlook through 2019 due to robust global demand and ongoing OPEC production cuts.

In a report released March 13, the ratings agency raised its forecast price for West Texas Intermediate and Brent crude oil to a band of $45.00 per barrel to $65.00/bbl, up from a range of $40.00/bbl to $60.00/bbl previously, citing a tightening in global oil supply amid strong demand and restraint from OPEC.

"This change in market conditions has resulted in benchmark prices that have averaged around $65/bbl this year. We expect price increases to be limited as additional supply from US shale production and other non-OPEC production limits price growth. However, risks to prices persist, particularly from a reduction in OPEC-led production restraint," the report states.

Moody's expects WTI and Brent crude oil prices to remain caught in that new price band through 2019 and noted potential volatility due to increases in shale production in the United States, a decline but still significant world oil supply and possible noncompliance with agreed upon output cuts.

OPEC, along with non-members, including Russia, announced at the end of November 2017 that they would extend production cuts through the end of this year. The 1.8 million barrel per day curtailment, which was implemented in January 2017 in an attempt to rebalance the market and support higher prices, was originally scheduled to expire at the end of March 2018.

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After a precipitous fall that began in 2014, global crude oil prices began to rebound in 2016, with Brent topping $70.00/bbl briefly at the end of January of this year and WTI reaching above $65.00/bbl at the same time.

The Brent-WTI differential still remains wider than the historical average, but is down from very high levels in 2017, as U.S. crude supply has fallen and exports rose, Barclays said in the report.

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Separately, Moody's said it is maintaining its Henry Hub natural gas price forecast between $2.50/MMBtu and $3.50/MMBtu, but is raising its outlook for NGLs to a range of $20.00/bbl to $30.00/bbl, up from a prior projection of $19.00/bbl to $27.00/bbl.

"[A]bundant US supplies of natural gas produced from shale developments, along with rapidly increasing associated gas from shale oil drilling, will continue to limit US natural gas prices — even with natural gas demand likely to increase for US production of liquefied natural gas, from US Gulf Coast petrochemical plants and from exports to Mexico," according to the Moody's report.