Moody's Has Improved Its Forecast For The Global Oil And Gas Sector For Q2 2020
Moody's has upgraded its outlook for the global oil and gas sector to stable from negative, but oil prices and demand will remain far from pre-pandemic levels next year, the agency said in a report.
"The forecast for the global oil and gas sector has been changed from negative to stable based on the expected promising recovery by June 2021 after an extremely weak second quarter," the materials explain.
"Having recovered from the lows reached in the second quarter, average oil prices in 2021 will remain in the range of 40-45 dollars per barrel, which is much lower than pre-pandemic levels," Moody's forecasts.
Even though the oil sector will benefit from an increase in demand for petroleum products, this demand will still be lower than in 2019, the agency also notes.
Moody's expects that capital expenditures for the industry will continue to decline in 2021, which may also affect companies' dividend payments. The average EBITDA of the oil and gas sector in the period from June 2020 to June 2021 will not change significantly in annual terms. Overall, the financial performance of the industry will gradually improve, but the timing of recovery remains uncertain.
The agency can improve the forecast for the sector to positive if the global economic recovery raises oil prices in the medium term to the level of 45-65 dollars per barrel. Another positive factor may be signs that the industry's free cash flow is returning to positive territory. At the same time, the forecast may be worsened again if oil prices fall significantly from current levels or restrictive measures on coronavirus are re-introduced in the world.
EBITDA for the integrated oil and gas sector will be broadly flat for the 12-month period through June 2021 compared with the same period ended 30 June 2020. Industry performance will gradually improve, after low prices and coronavirus demand shock caused a 70% fall in EBITDA in Q2 2020 compared to the previous year, but the recovery path remains uncertain.
After recovering from the lows in the Q2 trough quarter, average oil prices will stay at around $40 to $45 per barrel into 2021, well below pre-pandemic levels. Although integrated oil and gas companies' downstream operations will benefit from rising demand for refined products after the Q2 slowdown, demand will remain weaker than 2019 well into 2021.