The oil and gas industry will continue its slow recovery, as upstream companies increase production, which will help midstream and oilfield services firms, according to Moody’s 2018 outlook.
Excess supply will continue to dampen oil prices in the coming year, and natural gas prices will benefit from higher demand, but price gains will still be limited, Kallanish Energy reports.
“Prolonged oversupply will constrain oil prices in the next 1-2 years, though (Organization of Petroleum Exporting Countries)-led production cuts have now stabilized around price-supportive levels,” said Steve Wood, Moody’s managing director for oil and gas. “We expect prices to remain within the $40-60 per barrel band through 2019, assuming continued compliance with global production targets.”
Moody’s outlook is stable for the integrated oil and gas business over the next 12-18 months. Earnings will rise about 5% even as conditions remain strained as companies seek greater returns on upstream investments.
Enormous natural gas reserves will begin to provide economic returns for many producers at $3 per million Btu amid increased demand, Wood said. Storage levels, though still above the five-year average, are improving, while U.S. production is likely to grow again in 2018 after flattening in 2017.
Moody’s outlook for the E&P business remains positive, with earnings likely to rise more than 10% in 2018 amid increasing production volumes, helped by modestly higher capital spending. Service-cost inflation, though currently contained, could rise in certain markets.
The outlook for drilling and oilfield services companies is also positive, with earnings likely to rise 10-12%, as upstream capital spending and the global rig count continue to increase.
North American land markets will have the best margin opportunities while segments related to well completion will see the largest year-on-year price increases. Offshore markets, however, will have another weak year.
Moody’s outlook for the midstream segment is positive as well, with earnings likely to increase 8-10% in 2018. Both upstream capital spending and production will increase. While the U.S. federal regulatory climate supports the midstream segment, state and local regulations are likely to continue to pose hurdles.