BAKU, Azerbaijan, Sept.8
Trend:
Fitch Ratings has reduced both its 2022 and long-term price assumptions for Brent and West Texas Intermediate oil to reflect large underutilised production capacities, the extended period of high oil inventory caused by the coronavirus pandemic, falling upstream unit costs and the long-term energy transition.
“The price reduction comes despite a better-than-expected year-to-date performance due to decisive production cuts by OPEC+, loosened lockdown measures and an economic recovery that has led us to increase our 2020 assumption to USD41/b.
“Many countries have eased national pandemic-related lockdown measures despite the increasing number of new coronavirus cases in some countries. We do not assume a second round of strict lockdowns globally, and therefore we envisage an oil demand recovery that continues in 2021. A sharp demand drop in 2Q20 was partially offset by OPEC+ production cuts. The initial headline cut of 9.7 million barrels a day (mmb/d) in May and June 2020 was extended to July. In August, it was reduced to 7.7 mmb/d, as planned. The cuts are planned to be further reduced to 5.8 mmb/d between January 2021 and April 2022. This OPEC+ agreement has been the primary driver for oil price stabilisation, meaning that lower-than-expected cuts or conflicts within the group would put renewed pressure on oil prices as OPEC+ countries have very large unutilised production capacities.
“We have reduced Brent oil price assumptions to USD50/b in 2022 due to higher inventories, fragile supply-demand dynamics and the decreasing breakeven oil prices across the world. The latter, along with the energy transition, underpin the reduction of our long-term Brent price assumption to USD53/b. The global oil sector accumulated inventories at a rate of 6.4 mmb/d in 1H20, according to the US Energy Information Administration. We expect some inventory drawdowns in 2H20 and 2021. The low-carbon energy transition may also affect prices in the long term by reducing demand. The timing for oil demand peaking will be influenced by changes in regulation, taxation and technology, which are difficult to predict, but we believe the energy transition will materially reduce oil consumption growth prospects from the mid-2020s,” said Fitch Ratings.