Fitch expects “modest” price recovery in 2017
The market is unlikely to balance until the second half of 2016 "at the earliest" when there will still be elevated levels of oil stocks, even though the supply and demand gap appears to have peaked at 3mn b/d in the second quarter of this year.
"We have therefore effectively pushed back the slow recovery we had assumed by one year and now include a modest price recovery only in 2017," it said.
The credit ratings agency's new price assumption, which it uses for rating energy-sector companies, is for Brent to average $55/bl in 2016 and $65/bl in 2017. It expects WTI to average $50/bl in 2016, rising to $60/bl in 2017.
Fitch also lowered its long-term price deck for Brent to $75/bl, as improvements in efficiency and falling services sector costs will encourage more marginal barrels globally to come into the markets. But it held on to its long-term deck for Nymex WTI at $70/bl as "efficiency gains in US shale were already factored into our mid-year update."
A year of weak crude prices that saw the market plunge to six-and-a-half-year lows have already forced producers across the US such as Hess, Marathon Oil and ConocoPhillips to hunker down by sharply lowering drilling plans, cutting capital expenditure (capex) and deferring projects. Another year of a depressed market will possibly force many in the highly leveraged US shale industry, which had helped drive global supply, toward bankruptcy as they come under greater strain to shore up their balance sheets.