The ratings' firm raised the price band arguing that the production cuts and the demand growth are being offset by the rapid increases in US shale production.
Credit ratings major Moody's raised its medium-term price band for crude oil between $45 and $ 65 per barrel, taking into account prolonged production cuts by major oil producing countries and demand growth that have contributed to declining global inventories.
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The ratings' firm raised the price band from its earlier estimates of $40 to $60 per barrel, arguing that the production cuts and the demand growth are being offset by the rapid increases in US shale production.
The change in the market conditions has resulted in benchmark prices
to be averaged around $65/bbl this year. The firm further expects the price increase to be limited as the additional supply from the shale production and other non-OPEC production limits price growth.
Moody's has, however, maintained its price band for North American natural gas between $2.50 and $ 3.50 per million British thermal units (MMBtu). The price band has been maintained at Henry Hub, the industry's chief measure of natural gas prices.
The firm has raised the price band for natural gas liquids (NGLs) between $20 and $30/bbl, up from the earlier $19 to $27/bbl price band.
"Prices in the upper half of the oil price-band will encourage increased supply as US production grows and countries reduce compliance with their production quotas," observed Moody's Senior Vice President Terry Marshall.
"Nevertheless, even with crude prices at the higher end of the new $45-$65 range in early 2018, we expect prices to stay within this range over the medium term amid better balance between increased production and growth in demand."
Moody's analysts look to medium-term expectations as the most relevant price considerations when assessing financial performance and ratings for corporate issuers and oil-exporting countries.
According to the agency, the emphasis on a range of outcomes within the price band helps to assess the resiliency to price volatility, and thus durability of credit ratings, for entities.
Oil prices have firmed since OPEC's November 2016 agreement to cut oil production by 1.2 million barrels per day (bpd), while non-OPEC members, led by Russia, agreed to cut production by 558,000 bpd.
The result, according to Marshall, has been a decline in global crude inventories, which has contributed to higher oil prices.
Despite these various factors helping to boost commodity prices, Moody's says that the prices will remain rangebound, and possibly volatile, amid increases in US shale production.
First Published: IST