Fitch Ratings lowers oil price assumption to $35/bbl for 2016

Fitch Ratings has lowered oil price assumptions it uses to rate energy companies, reflecting its view that prices were “increasingly unlikely” to recover this year.

In a note to clients, the ratings agency said its new base case is for Brent and WTI oil prices to average $35 per barrel in 2016. Fitch also assumes a Henry Hub natural gas price of $2.25 per mcf for the year.

It had previously expected oil to average $45 per barrel and US natural gas to average $2.50 per mcf. However, Fitch’s long-term base case price assumptions remain unchanged at $65 per barrel and $3.25 per mcf, respectively.

Explaining its decision, the agency said the reduction 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 previously forecast.

“This suggests there will still be a supply surplus in the second half of 2016, albeit reduced from current levels, and that markets will probably only reach a balance in 2017. Even then, very high inventories will limit price increases,” Fitch concluded.