Oil prices will remain volatile this year but within range, Moody’s said in its annual report on the oil and gas industry. The top factor to watch in 2019 would be OPEC+ discipline in adhering to the production cut agreement that the group sealed in December.
"Market expectations for continued strong oil demand growth remain in place, despite concerns about slowing demand growth as a result of weaker economic growth, the impact of tariffs and a strong U.S. dollar," said the credit ratings agency’s managing director for oil and gas, Steve Wood, adding that "Very high Saudi and Russian production, in particular, has heightened supply volatility, so whether OPEC and Russia maintain production discipline and renew agreements to limit output are key concerns going into the new year."
Moody’s expects West Texas Intermediate to remain within a range of US$50-70 a barrel over the next five years, noting that although efficiency gains have served as tailwinds for U.S. oil production, pipeline bottlenecks have at least partially offset the positive effect by raising transportation costs.
The agency’s stance is reasonably guarded and echoes other forecasts for oil prices this year. JP Morgan, for example, earlier this week warned that OPEC+ might need to extend the production cuts until the end of the year as rising U.S. production was likely to offset any supply declines. Related: Oil Begins New Year With A Loss
Focusing on the U.S. oil and gas industry, Moody’s said investor returns from the upstream segment will remain pressured this year, but it had some good news about the oilfield services sector: there, Moody’s expects a 10-15 percent improvement in earnings. Still, the agency added, on the whole, oilfield services earnings will remain low, with most of the improvement manifesting itself towards the end of the year.
Oil prices are currently gaining, after tanker tracking data suggested Saudi Arabia’s crude oil exports in December fell by about half a million barrels daily. At the time of writing, Brent crude traded up 1.15 percent at US$55.54 a barrel with WTI at US$46.74, up by 0.43 percent.
By Irina Slav for Oilprice.com
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