A steady stream of oil and natural gas production should serve to aid the energy industry in its slow recovery, though excess supply is likely to tamp down price increases in 2018, according to a new report by Moody’s Investors Service.
"Prolonged oversupply will constrain oil prices in the next one to two years, though OPEC-led production cuts have now stabilized around price-supportive levels," said Steve Wood, Moody's managing director for oil and gas. "We expect prices to remain within the $40 to $60 per barrel band through 2019, assuming continued compliance with global production targets."
For natural gas, large reserves are expected to start yielding returns for many producers at $3.00/MMBtu as demand increases, Wood said. Storage levels are improving and U.S. production is anticipated to grow again in 2018 after the plateau seen this year.
The ratings agency’s outlook for the integrated oil and gas sub-sector over the next year to year-and-a-half is stable, while EBITDA should grow by approximately 5%, despite constrained investment conditions. Positive free cash flow could entice major European companies to reinstate cash dividends.
The outlook for the exploration and production sector remains positive, with EBITDA expected to grow more than 10% in 2018, as higher capital spending helps ramp up production volumes, according to Moody’s.
The midstream outlook is also positive, with EBITDA estimates for 2018 between 8% and 10%. Capital spending and production in the sector will increase, Moody’s reported. Potential headwinds include state and local regulations.
The refining and marketing sector of the industry has a stable outlook. EBITDA should grow 5% to 7% next year, as strong distillery demands are likely and should help ease high inventory levels, Moody’s said.
– Nicholas Stern, managing editor