The outlook for the global energy industry has been revised to positive from stable, Moody’s Investors Service said in a research published on Monday.
A sustained uptick in commodity prices on the back of a recovering global economy is set to bolster a turnaround in industry fundamentals over the coming 12 to 18 months, the ratings agency said in a statement.
Moody’s maintains its medium-term commodity price ranges of US$45-US$65 per barrel for oil and US$2-US$3 MMBtu for Henry Hub natural gas.
“Pent-up consumer demand and increasing trade and manufacturing activity as the COVID-19 pandemic is brought under control are driving a rebound in global economic activity,” said Elena Nadtotchi, a Moody’s senior vice president. “This, in turn, is quickening the pace of a recovery in demand for oil and gas through late 2021 and into early 2022.”
Favourable market dynamics and relatively low operating and offshore-services costs will bolster exploration and production companies’ earnings and operating cash flow in 2021 on the back of higher oil prices, Nadtotchi said.
Energy producers will focus on capital discipline and operating efficiencies in order to generate stronger free cash flow, pay down debt and strengthen their overall credit quality following a very difficult 2020, Moody’s said.
Similarly, pent-up demand for travel and seasonally higher second and third quarter earnings in 2021 bode well for the refining and marketing segment through 2022. Moody’s estimates that global demand for refined products will rise by about 6 per cent this year, and by almost 4 per cent in 2022.
Meanwhile, strong earnings in the global exploration and production and refining sectors will see integrated oil companies’ earnings rise by a median rate of about 50 per cent, though off a low base.
Tepid fundamental conditions point to a stable direction for the oilfield services and drilling sector over the next 12 to 18 months amid lukewarm growth in demand for services.
Large investment-grade oilfield services companies will see a modest improvement in cash flow and will gain market share during the recovery, Moody’s said, while smaller, regional and service-focused firms that have insufficient liquidity to await a full recovery will likely have to consider bankruptcy filings or liquidation.
‘Industry outlooks reflect our view of fundamental business conditions for an industry over the next 12-18 months. Since outlooks represent our forward-looking view on business conditions that factor into our ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average,’ Moody’s said.