Fitch lowers oil price assumption for 2016News // February 26, 2016
Fitch Ratings has lowered the oil and natural gas price assumptions it uses to rate energy companies, reflecting its view that prices are increasingly unlikely to recover this year.
"Our new base case is for Brent and WTI oil prices to average US$35 a barrel (bbl) in 2016. We also assume a Henry Hub natural gas price of US$2.25 per thousand cubic feet (mcf) for the year. We had previously expected oil to average US$45/bbl and US natural gas to average US$2.50/mcf. Our long-term base case price assumptions are unchanged at US$65/bbl and US$3.25/mcf, respectively," said the ratings agency.
Fitch said the reduction is due to a combination of stock build-up over the mild winter, higher-than-expected OPEC production in January and increasing evidence that global economic growth for the year will be weaker than it previously forecast. This suggests there will still be a supply surplus in the second half of 2016, albeit reduced from current levels, and that markets will probably only reach a balance in 2017. Even then, very high inventories will limit price increases.
"We will assess the impact on rated companies over the next few weeks. Companies with limited liquidity, which will be more stretched in 2016 and 2017 than previously forecast, are the most likely to face a negative rating action," Fitch said. "Our through-the-cycle ratings methodology means that any actions on better-funded, investment-grade corporates will be based on their financial and operating profiles in the medium term."