Fitch Ratings revised down its 2022 and long-term oil price assumptions on Wednesday mainly because of cornavirus-induced large oversupplies.
Fitch cited “large underutilized production capacities, the extended period of high oil inventory caused by the coronavirus pandemic, falling upstream unit costs and the long-term energy transition” as the various reasons for its downward revision.
The global credit ratings agency revised down its 2022 oil price forecast to $50 a barrel and long-term Brent price to $53 a barrel “due to higher inventories, fragile supply-demand dynamics and the decreasing breakeven oil prices across the world.”
“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 $41/b [per barrel],” the agency said in a statement.
It is also hopeful for better oil demand in 2021 with expectations that a second round of strict lockdowns globally will not emerge.
Recalling efforts to offset a sharp demand drop in the aftermath of the initial outbreak of the novel coronavirus pandemic, Fitch said further cuts are planned to reduce to 5.8 million barrels per day (mb/d) from the previously agreed 7.7 mb/d between January 2021 and April 2022.
Fitch forecast that the American benchmark West Texas Intermediate (WTI) would be below early 2020 levels “although better-positioned companies will return to low-to-mid single-digit growth.”
Some inventory drawdowns are also expected in the second half of 2020 and throughout 2021, according to the agency.
The agency also expects the low-carbon energy transition to affect prices in the long term by reducing demand although the timing for peak oil demand is expected to be influenced by changes in regulation, taxation and technology.
'We believe the energy transition will materially reduce oil consumption growth prospects from the mid-2020s,” it said.
By Sibel Morrow
Anadolu Agency
energy@aa.com.tr