According to the report 2015 and 2016 price assumptions are down by $10/bbl and $5/bbl drop respectively  for the Brent price with assumptions for WTI crude down by $10/bbl for 2015, to $75/bbl in 2015, and by $5/bbl to $80/bbl in 2016 and thereafter.

 

Moody’s also foresee rising demand for crude that will put a floor beneath crude prices in 2015 and beyond, limiting further price drops and pointing to a gradual correction although several factors could strain oil prices in 2015, including a further decline in China’s growth and a significant lifting of sanctions on Iran that brings a major national supplier to the world market.

 

Others include a lack of production discipline among OPEC members that rely on high oil prices to finance national budgets.

 

Upstream the report casts a positive outlook for industry projects with spending expected to continue as most industry projects are undertaken based on a long-term view and conservative price assumptions and hence  lower oil prices cannot not lead to a slash in spending.

 

“However, exploration budgets, projects that become more marginal in an $80 oil price environment, and other investments in early stages will come under closer scrutiny, which is likely to lead to some further spending cuts,” says Tom Coleman, Oil and Gas analyst at Moody’s.

 

Coleman adds that the sector’s trend in negative free cash flows and rising debt levels should moderate from 2015 through late 2016. Already many companies are focusing on capital efficiency, cost reductions, and shareholder rewards, with a pull back from long-cycle investments.

 

“Companies are trimming mature or marginal assets, as well as assets with excessive financial or political risk concentration. Some companies will redeploy cash into growth projects, and for shareholder returns,” Coleman adds.

 

Although production will remain a challenge the analyst foresees a scenario where the possibility of a positive outcome in 2015-16 is probable as a string of major projects move forward to deliver volume and cash flow growth with a number of leaders expected to focus on value over volume.

 

Downstream results are expected to improve modestly despite slower demand growth and rising refining capacity globally from new builds, lower crude prices could bolster refining margins at least for a period.

Source : OIL NEWS KENYA