Relief to upstream firms in Q2 as Dubai crude recovers: Moody's

Regional firms producing more oil or oil price-linked LNG will likely benefit from the recovery in Dubai crude price

Global credit research and ratings agency Moody’s Investors Service said the recovery in the Dubai crude price would provide some support to upstream oil companies, which have witnessed their margins contracting significantly over the past year.

“While oil prices remain weak, the recovery in the price of Dubai crude to $61.3 a barrel in the April-June quarter will provide some support to the earnings and cash flows of upstream oil companies,” said Vikas Halan, Moody’s vice-president and senior credit officer. Moody’s expects regional companies producing more oil or oil price-linked liquefied natural gas to benefit from the recovery in the price of Dubai crude.

“We also expect investment-grade exploration and production players, particularly national oil companies, to be better positioned, to weather the cyclical downturn in the oil and gas industry, given their greater financial flexibility, stronger liquidity profiles and better access to capital,” said Rachel Chua, Moody’s associate analyst.

Halan and Chua were speaking at the release of the latest edition of Moody’s ‘Asia Oil & Gas Quarterly,’ a publication on credit themes in Asia’s oil and gas industry.

According to Moody’s, Dubai crude traded at an average of $61.3 per barrel (bbl) in the April-June quarter, representing a 16.4 per cent increase from $52.6 per bbl in the preceding quarter, and ended the period at $60.9 per bbl. The improvement was in large part due to the stronger demand for refined products.

Moody’s said the strong gross refinery margin (GRM) levels will boost the results of refiners in the second quarter. Refiners will also benefit from inventory valuation gains. Overall, Moody’s expects gasoline spreads to remain strong, based on its expectations of higher demand from the West Asia. Middle and heavy distillate spreads will stay under pressure.