With oil production constrained, rising demand may boost prices
By: James Langton, October 7, 2021
© Pan Demin / 123RF Stock Photo
With demand rising but supply constrained, Moody’s Investors Service is raising its expectations for oil prices for the next couple of years.
The rating agency increased its medium-term oil price range to US$50/barrel to US$70/barrel, citing increased production costs and growing demand.
“We are now returning to the medium-term price range we had before the coronavirus pandemic as we expect the cost of production to continue to rise in step with recovery in demand,” said Elena Nadtotchi, senior vice president at Moody’s, in a release.
“We also expect that restricted supply will continue to support strong momentum in oil prices,” she added.
Despite the rise in energy prices this year, oil patch investment remains “well below pre pandemic levels,” Moody’s said.
Spending on production and refining plunged 30% in 2020, and has only recovered slightly since then, the rating agency noted — “companies are signaling continued spending restraint in 2022,” it added.
Moody’s expects large oil producers to remain “disciplined through 2022,” also noting that they likely will boost supply gradually “to match returning demand with the pace and scope of production increases varying by company and region.”
Looking further out, “Our analysis demonstrates that upstream companies will need to increase their spending considerably for the medium term to fully replace reserves and avoid declines in future production,” said Moody’s vice president, Sajjad Alam.
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