Fitch Ratings has lowered its corporate forecast assumptions for oil and
gas as follows due to recent weakening in supply and demand fundamentals:
--2016 oil price base case: $45/bbl;
--Long-term base case oil price: $65/bbl;
--2016 oil price stress case: $35/bbl;
--2016 natural gas base case: $2.50/mcf;
--Long-term base case natural gas price: $3.25/mcf.
In 2015 U.S. producers took advantage of sweet spots, low-cost
brownfield expansions, and previously funded projects to keep U.S.
production higher than many market participants expected despite sharply
lower prices. However those opportunities are expected to dwindle this
year, resulting in accelerating declines in production.
"The financial lifelines that have helped support many HY producers like
hedges and supportive bank financing are under increasing pressure,"
says Mark Sadeghian, Senior Director, U.S. Oil & Gas. "More broadly, the
cumulative impact of two years of outsized global capex cuts is expected
to result in a significant supply adjustment and eventually pave the way
for the beginnings of a price recovery."
The record warm winter produced by El Nino in December has also
significantly cut back near-term demand for heating fuel in the Northern
Hemisphere that would have otherwise helped support the energy complex.
Absent a sustained return in cold weather, the next catalyst to watch on
the demand side would be the ramp-up of the summer driving season and
summer air conditioning load.
Fitch believes oil prices in the current $30/barrel spot range are not
sustainable over a protracted period, as they cover cash costs but not
the replacement of developed reserves.
The full report, 'Revising Our Oil & Gas Price Assumptions: Resilient
U.S. Production, El Nino Push Recovery Out,' is available at www.fitchratings.com,
or by clicking on the link.
Additional information is available at www.fitchratings.com
Oil & Gas Price Assumptions Lowered (Resilient Production, El Nino Push
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View source version on businesswire.com: http://www.businesswire.com/news/home/20160120005961/en/
Copyright Business Wire 2016
Source: Business Wire
(January 20, 2016 - 9:46 AM EST)
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