Fitch Ratings revised down its short- and medium-term forecasts for crude oil prices, as the market is expected to be “massively oversupplied” in 2020, Kallanish Energy reports.
The U.S. credit agency said in a report last week the downgrades reflect the waning demand due to the coronavirus outbreak as well as higher supply following the Opec+ failure to agree on further output cuts.
Saudi’s plan to boost production from April and utilize its significant spare capacity is likely to keep Brent prices below $40 a barrel for the rest of the year, the analysts said. The supply glut this year in “various scenarios” is likely to be “much larger” than the maximum of 1 million barrels per day seen in the past decade.
Under its base case, Fitch cut its forecast for Brent crude by $21.50 a barrel this year, to average $41/Bbl. In 2021, Brent is expected at $48/Bbl, down from the previous forecast of $60/Bbl. In 2022, the benchmark is now seen at $53/Bbl, from $57.50/Bbl before. The long-term forecast sees Brent prices at $55/Bbl.
But the analysts said that in a stress case, Brent prices are expected at $36/Bbl. This is a $9 reduction from their previous estimate for 2020.
For WTI, the cut was of $19.50 a barrel, with prices now expected to average $38/Bbl. In 2021, the U.S. benchmark is estimated at $45/Bbl – down from $55/Bbl. In 2022, price is seen at $50/Bbl, compared with $55/Bbl previously.
WTI could average $33/Bbl this year under a stress case, which is $9.5 lower than Fitch’s previous forecast.
“We expect the market to rebalance in the next two to three years due to a recovery in demand once the coronavirus outbreak is contained, slowing or declining U.S. shale production due to its short-cycle nature, and potential production adjustments from Opec countries,” the analysts said.
The group sees U.S. shale production returning to growth when oil prices stabilise, as happened in 2016-2017 – which would limit the extent of the price recovery.
According to Fitch, Saudi Arabia’s fiscal break-even Brent price stands at $91 a barrel, and the Russian at $53/Bbl.
Brent futures fell 5.23% on Friday to trade at $26.98/Bbl, while WTI plunged 12.66% to $22.63/Bbl.
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