Fitch raises oil price assumption for 2016News // July 28, 2016
Fitch Ratings has raised the 2016 oil price assumptions it uses when rating energy-sector corporates, but expects record high inventories to slow any further price increases.
"We assume Brent and WTI will average US$42 a barrel in 2016, up from our US$35/bbl base case in February," said Fitch. "The increase follows evidence that the market will come into balance in the second half of 2016, which has already been reflected in a year-to-date average price of US$41/40 for Brent/WTI.
"However, we do not believe that the rapid price recovery seen in the first half of 2016 will continue. The sub-US$30 prices at the start of the year approached cash costs for many producers and were unsustainable in all but the very short term. Prices in the US$40-USD50 range allow most producers to break even on a cash basis, if not to cover sunk costs.
"We believe that record high inventories - OECD stocks are still more than 10 per cent higher than normal - and market expectations that US shale production will begin to rebound at prices above USD50, will keep prices below that level until a supply deficit has eroded some of the inventory overhang.
"We have therefore left our 2017 and 2018 price assumptions unchanged at US$45 and US$55 respectively. Our long-term expectations for both Brent and WTI are unchanged at US$65, reflecting our view on the long-run marginal cost of supply."