S&P Global Ratings said that it has lowered its West Texas Intermediate (WTI) and Brent crude oil price assumptions for 2020 by $10 a barrel, adding that oil price assumptions are unchanged for 2021 and 2022.
Oil markets are heading into a period of a severe supply-demand imbalance in second-quarter 2020. The acute oversupply threatens to test the limits of crude and product storage as soon as May, according to S&P Global Platts Analytics.
S&P anticipates a recovery in both GDP and oil demand through the second half of 2020 and into 2021 as the most severe impacts from the coronavirus outbreak moderate.
A material supply response from non-Opec producers is unlikely until later in 2020.
“We presently do not assume a significant probability of renewed agreement on Opec+ supply cuts in the coming months, although this is highly uncertain. Any cuts would need to be much larger than those agreed upon since 2016 to balance the market in the coming months,” S&P said in the report.
“This comes at a time when producers, particularly those in North America, are under tremendous pressure by investors to limit spending, maintain positive free cash flow, and enhance shareholder returns.
“During the previous down cycle in 2015-2016, many producers were successful in significantly reducing their costs and improving their balance sheets through asset sales and equity issuance, which helped reduce the magnitude of rating actions. However, we do not expect producers to achieve anywhere near the efficiencies gained last time.
“We also believe capital market access will be available only for the strongest issuers. Given negative investor sentiment, capital markets access, and coronavirus concerns, it is likely rating actions in the investment-grade space could be more severe. For the speculative-grade space, especially issuers without hedges, those that face upcoming maturities and are somewhat squeezed on borrowing base revolving credit facilities will most likely face multiple-notch downgrades,” S&P noted in the report. – TradeArabia News Service
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