Europe’s big oil companies need oil to stay in a range between US$50 and US$60 a barrel to remain cash flow positive, Fitch Ratings said. The agency added that this represents significant progress from the times when Big Oil in Europe was finding it hard to break even at US$100 per barrel. Still, dangers remain if crude falls below the US$50 mark and the companies risk losing their current credit ratings.
According to Fitch, Total is the best performer, with cash flow breakeven levels near the bottom end of the US$50-60 range, while BP needs prices to climb closer to US$60 to make a positive cash flow. Still, the ratings agency notes, its analysis is broadly in line with the companies’ own guidance regarding this metric.
All this could change very quickly and unpleasantly if prices dip below US$50 a barrel, which is certainly not out of the question. Last week, Borris Schlossberg, managing director of BK Asset Management, warned that oil prices are in a very vulnerable place, and the longer they stay within the US$50-55 range, the more likely they are to eventually start declining, rather than rising. Boris Schlossberg told CNBC that if WTI drops to US$50 from the current US$52, the further move downwards will become much more likely than it is now. Related: Energy Storage Set To Boom In 2017
Another expert, Daniel Yergin, said he expected U.S. shale boomers to raise their output by a combined 500,000 bpd this year, which should be a cause for concern for OPEC and their partners participating in the production cut agreement that aims to take off more than a million barrels off daily global supply to support prices.
Still, according to Fitch, if Europe’s Big Oil stays on the same course it has been following so far since 2014, with capex cuts, operational cost improvements, and suspension of dividends, they would be able to weather the effects of negative cash flows this year.
By Irina Slav for Oilprice.com
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