Moody’s Investors Service on Friday joined a chorus of energy analysts and lowered its assumptions for North American natural gas prices for the next two years. However, its two-year outlook for benchmark crude oil prices are higher.
“The move reflects the rating agency’s expectations that oil prices will remain robust over the next two years, while natural gas will remain significantly oversupplied,” Moody’s said. Analysts noted that the price assumptions are baseline approximations, not forecasts, that are used to evaluate risk when credit conditions within the oil and gas industry are analyzed.
Price assumptions for gas delivered at the benchmark Henry Hub (HH) were cut to $3.50/MMBtu in 2012, $4.00/MMBtu in 2013 and $4.00/MMBtu thereafter. Moody’s had earlier assumed HH spot prices of $4.00/MMBtu in 2012 and $4.50/MMBtu thereafter. The ratings agency’s $3.00/MMBtu stress case price remains unchanged.
On Tuesday the Energy Information Administration said HH spot prices, which are expected to average $4.02/MMBtu in 2011 — 37 cents/MMBtu lower than last year — will continue to decline, averaging just $3.70/MMBtu in 2012, which is 43 cents lower than a forecast in November (see Daily GPI, Dec. 7; Nov. 9).
Last Monday Raymond James & Associates Inc. reduced its 2012 natural gas price forecast to $3.50/Mcf from $4.00/Mcf (see Daily GPI, Dec. 6). It previously reduced its price forecast in October to $4.00/Mcf from $4.25/Mcf (see Daily GPI, Oct. 17).
“A glut of natural gas supply has grown even more abundant over the past year, and the rush to develop unconventional resources — partly with the help of large integrated and national oil companies — has kept supplies high and prices low,” Moody’s said. “This condition will persist beyond Moody’s near-term window of 12-18 months.”
Moody’s now assumes a price of $90/bbl for West Texas Intermediate (WTI) crude in 2012, and $85/bbl in 2013, dropping to $80/bbl in the medium term, which falls beyond 2013. The ratings agency had previously assumed a price of $80/bbl for WTI in 2012 and beyond. For European Brent crude, Moody’s assumes a price of $95/bbl in 2012, $90/bbl in 2013 and $80 in the medium term — higher than the previous assumption of $90/bbl in 2012 and $80/bbl thereafter. Moody’s said it would continue to use $60/bbl as a stress case price for both WTI and Brent.
“A significant bottleneck at the important Cushing, OK, transportation hub kept WTI prices at a steep and unusual discount to Brent during 2011,” said analysts. “But recent plans to reverse the Seaway pipeline will narrow the WTI/Brent spread to just $5/bbl in 2012 and 2013 — down from Moody’s previous assumption of $10/bbl. According to the new price assumptions, this spread will disappear entirely after 2013.”
However, Moody’s said it believes “oil prices face more risks of pressure in 2012, including potential economic contraction in Europe, slowing growth in China and other emerging economies, and a growing supply as Libya reenters the market. These risks are tempered by the producing countries’ need for higher prices to support social spending programs, along with their growing domestic demand.”
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