Ratings agency expects oil price to flatline in 2017News // November 30, 2016
High inventories and the potential for US shale production to respond quickly to any market tightening mean oil prices may flatline in 2017 before gradually moving higher over the next few years, Fitch Ratings says.
“We expect supply and demand to be broadly balanced in the first half of 2017,” said the ratings agency, “with a move to a more pronounced deficit from the second half of the year. However, still-high commercial inventories may delay any significant price response. We have therefore maintained our base-case assumption, used when rating energy sector corporates, that both Brent and West Texas Intermediate will average US$45/barrel in 2017. We have also maintained our US$55/barrel assumption for 2018 and introduced a 2019 price expectation of US$60, reflecting our belief that it may take longer to fully return to our long-term equilibrium price of US$D65/barrel.”
However, the rating agency says there is “significant uncertainty” about the future path of oil prices. What it described as “unprecedented” capex cuts could translate into a far sharper fall in output than the consensus expectation, and there is also potential for demand growth to slow if economic growth disappoints or for supply to be higher than expected if US shale comes back strongly as prices rise.
“Our price assumptions do not factor in any impact from a possible OPEC production cut agreement during its meeting scheduled for 30 November. This is because even if a deal is agreed, its ability to have a lasting impact on prices is unclear and will depend on the size of the cuts and the willingness of members to stick to them,” Fitch said.