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Moody's: Global oil industry to focus on disciplined investment, M&A for growth in 2018

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prices will remain at $40-$60 per barrel in 2018 despite the extension of OPEC-led production cuts through the end of the year, Investors Service says in its 2018 credit trends report for the global and gas industry. Higher prices within or above that range will see supply grow as countries lessen their compliance with production quotas and US shale production continues to increase. Meanwhile, abundant supplies of US will constrain prices, even while demand goes up.

"Political unrest in the Middle East, alongside assumptions of extending its agreement to cut production, helped to bolster prices in late 2017," observed Terry Marshall, a Senior "Yet even with these factors offering a boost, prices will likely remain range-bound, and possibly volatile, on a combination of increasing US shale production, reduced but still significant global supplies, and potential non-compliance with agreed production cuts -- especially if demand growth is more tepid."

After strong capital investment in 2017, North American exploration and production (E&P) companies will focus on boosting capital returns in 2018, though greater capital discipline will rein in this growth thereafter, says. E&P companies will be aiming for profitable growth within existing and cash flow, with improvement favoring companies with the greatest exposure to the best acreage and producers in the Permian Basin leading the way.

The global industry, meanwhile, will continue its recovery from the in 2018, though the health of the sector will remain frail.

Higher utilization of equipment will help improve pricing, but supply will align more closely with demand only later in the year, as current oversupply diminishes. companies will face ongoing pressures from customers, reactivation and upgrade expenses, and higher labor costs.

At the same time, slower growth will prompt providers of infrastructure to increasingly eliminate incentive distribution rights, retain more cash and simplify their corporate structures. Such actions will likely improve the credit quality of midstream firms, provided they do not take on more debt in the process.

will be strategic and occur increasingly between larger companies across the in 2018, following 2017's tactical asset acquisitions, divestitures and swaps, Moody's says. Valuations will rein in larger mergers in the E&P sector, even as lags in the and midstream sectors. Independent E&P firms will be particularly attractive to larger independents and companies.

"In 2018, larger E&P companies with strong balance sheets will seek efficiencies of scale in higher-return basins," said Amol Joshi, a Moody's -- "For their part, smaller and sometimes over-leveraged firms could create value by combining with larger producers to accelerate development."

Global demand for oil will continue to grow through 2040, with light vehicle oil demand growth peaking by 2030, more because of steadily increasing fuel efficiency for light passenger vehicles than the rise of electric vehicles. Major companies will invest in renewables and alternative-technologies in 2018, and some will continue their transition toward natural gas, with its more favorable carbon footprint and good long-term demand prospects.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 12:23 IST