Moody's sees oil at $50-$70/bbl in medium-term

Supply constraints will continue to support strong price momentum

  
Oil and gas industry - refinery factory - petrochemical plant at sunset. Image used for illustrative purpose.

Oil and gas industry - refinery factory - petrochemical plant at sunset. Image used for illustrative purpose.

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Moody's Investors Service has set its medium-term oil price range to $50-$70/barrel (bbl) to "reflect its expectation that the full cost of production of a marginal barrel of oil will keep increasing in step with a continued recovery in demand."

Global oil prices have risen by around 60 percent this year on higher demand as economies emerging from the COVID-19 coronavirus pandemic-induced lockdowns resumed economic activities. WTI crude was trading $77 per barrel while Brent crude oil, to which Middle East oil price is pegged, was at $80.76 on Thursday.

In its report, Moody's said it also expects that restricted supply will continue to support strong momentum in oil prices.

Investment in the upstream energy sector is well below pre-pandemic levels despite the sharp turnaround in oil and natural gas prices in 2021. Upstream spending has risen only slightly after a steep 30 percent drop in 2020. "Producers are still planning to invest conservatively in 2022, but we expect modest spending growth on the back of high commodity prices," the report said.

Exploration and production (E&P) companies are signaling continued spending restraint in 2022, the ratings agency said.

Large independent E&P, integrated and national oil companies will all keep production disciplined through 2022, boosting supply gradually to match returning demand with the pace and scope of production increases varying by company and region, it said.

(Reporting by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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