Moody’s: Prolonged oversupply to continue pressuring oil prices in 2016

by **Cals** Wed 16 Dec 2015, 01:39

Moody’s: Prolonged oversupply to continue pressuring oil prices in 2016

By Ahmad Naqib Idris / theedgemarkets.com | December 15, 2015 : 6:36 PM MYT

KUALA LUMPUR (Dec 15): [size=16]Moody’s Investors Service expects oil prices to remain pressured in 2016, due to a prolonged period of oversupply next year, with the dampened situation to particularly affect players in the exploration and production (E&P) and drilling and oilfield services sectors (OFS).

The agency had maintained its negative outlook on the integrated oil and gas (O&G), E&P and OFS sectors.

“The negative outlooks reflect further threats that would compound the current oversupply, which include increased oil exports from Iran in 2016 and the prospect of lower demand from China, the world's largest consumer of commodities, as its economy slows,” it said.

Moody’s managing director of the O&G team Steve Wood said the low commodity prices and uncertainty of recovery will limit E&P activities in 2016, which could mean spending cuts, stalled production growth and volume declines.

"And these cuts will in turn lead to lower revenue for drilling and oilfield services companies, which will face persistent equipment overcapacity and need to minimize capital expenditures just to operate near break-even cost levels," he added.

Wood said the integrated O&G sector will need to cut capital expenditures in 2016, on top of the 20% cut in 2015, as the sector will see negative free cash flow through to next year.

Meanwhile, the ratings agency maintained a stable outlook on the refining and marketing, and midstream subsectors, which is expected to see slower growth, but will remain in positive territory.

According to Bloomberg data, West Texas Intermediate crude gained 0.52% to US$36.50 per barrel, while Brent crude rose 0.84% to US$38.24 per barrel.
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