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Fitch: Geopolitics and Demand Support Medium-Term Oil Prices

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will remain relatively high for the rest of 2018 due to ongoing geopolitical tensions and strong demand, and despite indications from and that they may start to increase production, says. However, marginal producers' full-cycle costs drive in the long term and we assume a gradual price fall to below USD60/bbl by 2020.

We have raised our Brent and WTI for 2018 and 2019. Now we assume Brent will average USD70/bbl in 2018 and USD65 in 2019, compared to the previous assumption of USD57.5 in both years. The revision reflects high year-to-date prices, Venezuela's production decline, continued geopolitical tensions, including the renewal of US on Iran, and strong demand growth.

and Russia, two main driving forces behind the OPEC+ agreement, indicated they would consider adjusting production quotas at the OPEC meeting scheduled for 22 June.

This should help offset the production declines in and a possible drop in exports from after the renewed US sanctions come into force later this year. It is difficult to predict the outcome of the OPEC summit and subsequent compliance with any revised agreement, but we expect any production ramp-ups to be gradual and co-ordinated to avoid the market shifting into a massive surplus.

Our long-term price assumptions, including for 2020, are unchanged at USD57.5/bbl for Brent and USD55 for WTI to reflect our view that the US shale industry should remain a and should be able to meet a significant portion of global demand growth for the next several years. Higher-than-expected cost inflation may push prices above our long-term expectations; however, we believe per-barrel full-cycle costs have remained relatively unchanged so far. Much also will depend on whether producers would be able to preserve efficiency gains achieved so far as remain high.

We do not expect this price deck revision to trigger multiple positive rating actions in our global corporate portfolio. However, the will alleviate the pain of very high-yield exploration and production companies, for which liquidity remains an important credit driver, and selective positive rating actions are possible for them.

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

First Published: Thu, June 14 2018. 10:24 IST
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