Moody’s Investors Service announced Tuesday that it has “significantly lowered” its Brent and WTI price assumptions for 2016, citing “continued high levels of production” that has surpassed growth in oil consumption as the rationale for its decision. The potential return of Iranian oil to an already oversupplied global market could offset or even exceed forecast declines in US production, Moody’s said. “[T]his will lead to a prolonged period of oversupply that will continue to keep prices low.”
Moody’s lowered its Brent price assumption for 2016 to $43 from $53/bbl, and lowered its WTI assumption to $40 from $48/bbl. The ratings agency forecasts both benchmarks to rise $5/bbl in 2017 and 2018.
These price levels are still significantly higher than current levels. Early Tuesday morning, Brent was at $38.36 and WTI at $36.45/bbl, up slightly after hitting 11-year lows in recent days.
The agency cited increased production by OPEC members following the group’s December 4 decision to abandon its recommended output ceiling as a key factor in an ongoing oversupplied market next year. Russia’s boost in production to post-Soviet record highs, and Iran’s return to the market, were also cited.
Moody’s also significantly decreased its medium-term price assumptions for Brent and WTI, to $63/bbl and $60/bbl, respectively. These reductions reflect the Moody’s forecast that the supply-demand equilibrium will eventually be reached at around $63/bbl for Brent, but only at the end of the decade.
Despite the reduction, the ratings agency says that these prices would still support some development of the world’s most expensive oil in “an environment of lower development costs than in recent years.”