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Major Credit Agency Slashes Oil Price Outlook To Reflect A Record Glut

Fitch Ratings has slashed its short- and medium-term oil price assumptions, expecting a record glut in 2020 that will keep the market off balance at least in the next two years.  

Fitch slashed its average base-case 2020 price assumption for Brent Crude to $41 a barrel from $62.50 expected before the coronavirus pandemic and the OPEC+ deal collapse. For WTI Crude, Fitch now assumes an average price of $38 per barrel this year, down from an earlier assumption of $57.50. 

In Fitch’s stress-case scenario, Brent Crude is expected to average $36 a barrel while WTI Crude is seen averaging $33 per barrel in 2020. 

The enormous demand destruction from the coronavirus outbreak and the all-out oil price war between Saudi Arabia and Russia will lead to a massive record-breaking oversupply on the market this year, according to Fitch Ratings. 

“This could keep the Brent price below USD40/bbl for the rest of this year, as the magnitude of oversupply in 2020 in various scenarios is likely to be much larger than the maximum of 1 million barrels a day (mmbpd) seen in the past decade,” the credit rating agency said.  

Fitch sees the market gradually rebalancing over the next two-three years when demand will have recovered from the pandemic, U.S. shale would have declined because of unsustainable current prices, and OPEC possibly forging a new deal as both Saudi Arabia and non-OPEC Russia would feel the pain from their oil price war. 

Related: Russia Needs Higher Oil Prices, But Won't Surrender

“Both Saudi Arabia and Russia, the key parties to OPEC+, have fiscal break-even Brent prices above current market prices, at USD91/bbl and USD53/bbl, respectively,” Fitch said. 

Apart from slashing near and medium-term price assumptions, the rating agency also cut its long-term assumptions “to reflect continued efficiency gains, low break-even oil prices of many greenfield projects and a potential for demand to slow due to energy transition.” 

For the long term, Fitch’s current assumptions are Brent at $55, down from $57.50 expected earlier, and WTI at $52 a barrel, down from $55 previously. 

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By Tsvetana Paraskova for Oilprice.com

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