Moody's slashes Brent assumption to $43 for 2016

Moody's has taken an axe to its oil price estimates due to the threat of prolonged oversupply, hacking its 2016 Brent assumption to $43 from $53, with West Texas Intermediate lowered to $40 from $48.

The credit agency said continued high levels of production by global oil producers were significantly exceeding growth in oil consumption, predicting the supply-demand equilibrium will only be reached by the end of the decade at around $63 per barrel for Brent.

The outlook for integrated oil and gas companies is for EBITDA to show modest recovery in 2016 from 2015 lows, Moody's predicted, though the exploration and production sub-sector will suffer EBITDA declines of 20%-25% in 2016, while drilling and oilfield services companies will see EBITDA declines of at least 20% next year. The areas of midstream and refining will see EBITDA flatten, it added.

The lifting sanctions on Iran could add significant supply next year, added to Saudi Arabia and Russia both recently increasing production to their highest levels since the early 1990s, offsetting or even exceeding expected declines in US production, prolonging oversupply and keeping oil prices low.

"We do not think global production will fall before the second half of 2016 at the earliest, when the effects of this year’s investment cuts lead to less new production to offset existing declines."

Moody's forecasts that global oil demand will rise by roughly 1.3m barrels per day in 2016, an increase from its previous assumptions as oil consumption picks up in countries such as the US, China, India and Russia.

"Opec oil producers continue to produce without restraint as they compete for market share, exacerbating the currently saturated markets," said Moody's senior vice president Terry Marshall.