Fitch Ratings has lowered its long-term price assumption for West Texas Intermediate to $50 from $52 a barrel expected earlier, to reflect fragile market balances, inventory overhangs, lower breakevens, and the energy transition going forward.
According to the rating agency’s latest oil and gas price assumptions update on Tuesday, Brent Crude prices are expected at $53 a barrel in the long term in the base-case scenario, compared to a previous forecast of $55 per barrel.
Fitch also reduced its oil price outlook for 2022, expecting Brent Crude prices at $50 per barrel, down from an earlier projection of $53 a barrel, on the back of higher inventories that will have resulted from the pandemic, as well as the fragile supply-demand dynamics and declining breakeven oil prices in many areas. WTI Crude prices are now expected to average $47 a barrel in 2022, down from $50 expected earlier.
“The price reduction comes despite a better-than-expected year-to-date performance due to decisive production cuts by OPEC+, loosened lockdown measures and an economic recovery that has led us to increase our 2020 assumption to USD41/b,” Fitch Ratings said.
The rating agency expects some inventory drawdowns in the second half of this year, and in 2021, after inventories had accumulated at a rate of 6.4 million barrels per day (bpd) in the first half of 2020 as per EIA estimates.
Apart from fundamentals, oil prices in the long term will reflect the ongoing drive for the transition to low-carbon energy sources, Fitch noted.
“The timing for oil demand peaking will be influenced by changes in regulation, taxation and technology, which are difficult to predict, but we believe the energy transition will materially reduce oil consumption growth prospects from the mid-2020s,” the rating agency’s analysts said.
For the Henry Hub natural gas prices, Fitch Ratings left its medium and long-term price assumptions unchanged at $2.45 per thousand cubic feet (mcf), but raised its 2020 average price outlook to $2.10/mcf from $1.85/mcf, thanks to more favorable short-term fundamentals.