Fitch Ratings has lowered the oil and natural gas price assumptions it uses to rate energy companies, citing its view that “prices are increasingly unlikely to recover this year,” the New York based credit rating agency announced on Wednesday.
Fitch now expects oil prices to average US$35 per barrel (bbl) in 2016, down from its previous assumption of US$45/bbl. It also cut its assumption for natural gas prices to US$2.25 per thousand cubic feet (mcf) from US$2.50/mcf for the year. Its long-term price assumptions are unchanged at US$65/bbl and US$3.25/mcf, respectively.
The latest reduction in price assumptions 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 we previously forecast,” Fitch says in a statement.
The rating agency says that these factors indicate that there will still be a supply surplus in the second half of 2016, but that it will be reduced from current levels, and that markets will probably only reach a balance in 2017. “Even then, very high inventories will limit price increases,” the statement says.
The impact of the new price assumptions on the energy companies rated by Fitch will be analyzed “over the next few weeks”, the statement adds. “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.”