S&P Global Ratings has raised its price assumptions for Brent crude oil to $55 for 2018, while West Texas Intermediate (WTI) and Henry Hub natural gas assumptions remain unchanged for 2018 and 2019.

In an article titled "S&P Global Ratings Raises 2018 Brent Oil Price Assumptions To $55; WTI Unchanged At $50; Assigns 2020 Oil & Gas Prices," on RatingsDirect, S&P said it has added price assumptions for 2020 to its price deck.

“We use the price deck to assess sovereign and corporate credit quality, in particular for exploration and production companies,” it noted.

“We anticipate very few rating actions resulting solely from these revised price assumptions, which are effective immediately. Our near-term oil and natural gas price decks broadly reflect our assessment of futures prices,” the ratings agency said.

“We recognize the typical volatility of these market indicators, as demonstrated during 2017. We also note the persistence of a wider differential of $6 per barrel (/bbl) between Brent and WTI recently, although we believe this differential is likely to be nominally smaller in 2018. We base our long-term price assumptions mostly on fundamental analysis including assessments of the marginal cost of oil and gas production, as well as supply and demand fundamentals, for example.”

“We continue to expect Brent and WTI to be range-bound in 2018. We note that Brent has been trading above $60/bbl since October 27, 2017, having closed at that price on September 25 for the first time since July 2015.

“As present, futures prices remain above $60/bbl until November 2018. We believe the price increases reflect ongoing Opec production cuts, supply disruptions, and temporary production declines as well as positive market sentiment about demand.

“Shipments from northern Iraq were reportedly lower in October and production from several other regions was down as well. However, we assume these specific supply issues will be addressed in coming months. What's more, we believe that continuing production growth may marginally exceed consumption growth in 2018,” S&P Global Ratings explained.

Opec cuts underpin global oil markets

The 1.8 mbd of production cuts by Opec and other countries remains key to the relative stability of oil prices. Based on recent reports, S&P assumes that the majority of the cuts will remain in place for 2018.

“We do see some risk that compliance could weaken by certain Opec and non-Opec producers during 2018, although net compliance has been broadly consistent to date,” S&P said in the article.

“We have seen substantial non-Opec production growth from significant field developments in 2017 and project a continuation in 2018. However, for us net growth from the US, particularly onshore shale oil, continues to be the most important factor countering the effectiveness of the Opec cuts.”

Demand for crude continues to grow near term

Demand for crude is likely to remain clearly positive--at least for the next year or so. The International Energy Agency (IEA) and others have recently indicated robust global oil demand growth in 2018 at 1.3 per cent or above.

“We see this supported by positive economic growth momentum in both advanced and emerging economies. These shorter-term dynamics are in contrast to multi-decade pressures on oil demand because of environmental concerns and policies,” S&P Global Ratings said.

“We believe the rate of adoption of electric vehicles and the speed of the broader energy transition are critical factors in this respect. While the rate of change is uncertain, with every year that passes they play an increasingly larger role in both demand scenarios and company strategies.” - TradeArabia News Service