OIL: Moody’s cuts price estimates to $33 as supply glut continues

Moody’s Investors Service cut its price estimates for Brent crude and West Texas Intermediate crude amid continued oversupply in the oil markets and the risk of additional supply from Iran.

 
The rating agency has lowered its 2016 price estimate for both the international benchmark Brent and the North American benchmark WTI crude to $33/barrel. For Brent, this marks a $10/b reduction from it’s previous estimate, and for WTI, a $7/b reduction. Moody’s expects that both prices will rise by $5/b on average in 2017 and 2018.
“OPEC countries continue high levels of production in the battle for market share, contributing to the current oil glut despite moderate consumption growth by key consumers such as China, India and the US,” said Terry Marshall, a Moody’s Senior Vice President. "In addition, we expect the rise in Iranian oil output this year to offset or exceed production cuts in the US."
Moody’s maintains its price estimates for North American natural gas at Henry Hub at $2.25 per million British thermal units (MMBtu) in 2016, $2.50/MMBtu in 2017 and $2.75/MMBtu in 2018. Moody’s also maintains its price estimates for natural gas liquids (NGLs) at $12/b of oil equivalent (boe) in 2016, $13.50/boe in 2017 and $15/boe in 2018.
Ongoing increases in OPEC oil production offset growing global demand of about 1.4 million barrels per day, according to the US Energy Information Administration, leading to a rapid build-up of oil inventories.
"Today’s large global inventories will still take time to unwind and will continue to drag on prices even as demand picks up," added Marshall.
Moody’s said price estimates are likely to be revised during the year based upon updated information on market fundamentals and futures prices. For example, its $33 estimate of the average price realised per barrel during 2016 implies an upward trend from current spot prices to a price meaningfully higher than $33 by year-end. Moody’s will likely lower this estimate if such an upward trend were not to materialise over the next several months.