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Highlights

Trade war, Middle East tensions leading to uncertainty

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Upstream industry seen most at risk

The outlook for growth for the North American oil and gas industry is being called into question by the threat of a global recession brought on by international trade disputes and the potential for conflict in the Middle East, an S&P Global Ratings report found this week.

The report, "Rising Recession Risk Adds to Trade, Rate Uncertainty," which examines credit conditions across North America, was one of four related reports released this week by the ratings agency.

S&P Global Ratings, like Platts, is a division of S&P Global.

"Trade uncertainty, concerns about a global growth slowdown, and market fears all have moved S&P Global Ratings' economists to raise the risk of a US recession starting in the next 12 months to 30-35% (an increase of five percentage points from the prior quarter)," the report finds.

Among the threats to growth in the North American energy industry are trade and geopolitical tensions, which "are leading to more frequent and intense periods of market volatility," the report finds. While the US/China trade war shows no signs of abating, the US and Canada have yet to ratify the trade agreement to replace NAFTA, the analysts noted.

In addition, the recent drone attack on Saudi Arabian oil refineries has exposed the vulnerabilities of global energy markets to potential catastrophic disruptions.

In the US, the analysts have moved their outlook for the upstream oil and gas sector from stable in the second quarter to stable-to-negative in the current period. Other industry segments to see the same downgrade are: chemicals; metals and mining, capital goods, technology, leisure and sports.

Meanwhile, the outlook for the midstream energy segment, oil refineries, and the merchant power industry, have remained as stable, as have the aerospace & defense, transportation, building materials, real estate and homebuilder industry segments.

CANADA: OIL PRICE VOLATILITY SEEN

In Canada, "volatility in oil prices and transportation constraints could delay business investments in the energy sector," the analysts found.

"A weaker profile for investment could emerge if rising volatility in the commodity markets deteriorates Canada's terms of trade," the report states.

"On the other hand, a sustained higher oil price on balance could lead to higher investment spending and net export income in Canada, given that Canada is a net exporter of oil."

In addition, a tightening in access to debt markets could have a negative impact on North American oil and gas companies, particularly those with credit ratings of "B" or lower, the analysts found.

On the global scale, S&P Ratings reported that rising political tensions and heightened uncertainty are weighing on business and consumer confidence and "undermining global growth prospects." Among the roadblocks potentially impeding global economic growth are: "the US/China trade/technology war, Brexit, US-Mexico-Canada Agreement delayed ratification, US-Iran tensions, recent attack on Saudi oil facilities, and (the) Japan-Korea technology dispute," the analysts found.

-- Jim Magill, jim.magill@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com