Moody’s Investors Service increased its medium-term oil price range to $50-70/barrel to reflect the rating agency’s expectation that the full cost of production of a marginal barrel of oil will keep increasing in step with a continued recovery in demand.
“We are now returning to the medium-term price range we had before the coronavirus pandemic as we expect the cost of production to continue to rise in step with recovery in demand,” said Moody’s Senior Vice President Elena Nadtotchi.
“We also expect that restricted supply will continue to support strong momentum in oil prices,” the analyst added.
Moody’s said that the upstream energy sector continues to invest well below pre-pandemic levels despite the sharp turnaround in oil and natural gas prices in 2021.
It added that exploration and production (E&P) companies are signalling continued spending restraint in 2022.
“Upstream spending has risen only slightly after a steep 30% drop in 2020,” the rating agency said in its report on the sector. “Producers are still planning to invest conservatively in 2022, but we expect modest spending growth on the back of high commodity prices.”
“Our analysis demonstrates that upstream companies will need to increase their spending considerably for the medium term to fully replace reserves and avoid declines in future production,” added Moody’s Vice President Sajjad Alam.
The Moody’s report concluded that large independent E&P, integrated and national oil companies will all keep production disciplined throughout 2022, boosting supply gradually to match returning demand with the pace and scope of production increases varying by company and region.