We expect supply and demand to be broadly balanced in H1 FY17, with a move to a more pronounced deficit from H2 FY17. But the still-high commercial inventories may delay any significant price response. We have therefore maintained our base-case assumption, used when rating energy-sector corporates, that both Brent and WTI will average US $ 45/barrel in 2017. We have also maintained our US $ 55/barrel assumption for 2018 and introduced a 2019 price expectation of US $ 60, reflecting our belief that it may take longer to fully return to our long-term equilibrium price of US $ 65/barrel.
But there is significant uncertainty about the future path of oil prices. Unprecedented capex cuts could translate into a far sharper fall in output than the consensus expectation, while there is also potential for demand growth to slow if economic growth disappoints or for supply to be higher than expected if US shale comes back strongly as prices rise.
Our price assumptions do not factor in any impact from a possible OPEC production cut agreement during its meeting scheduled for November 30. This is because even if a deal is agreed, its ability to have a lasting impact on prices is unclear and will depend on the size of the cuts and the willingness of members to stick to them.
Fitch Corporate Oil and Gas Price Assumptions
|Natural Gas-Henry Hub (USD/mcf)||2.35||2.75||3.00||3.00||3.25|
|Natural Gas-NBP (USD/mcf)||4.75||5.50||5.50||6.00||6.50|
|Natural Gas-Henry Hub (USD/mcf)||2.30||2.00||2.25||2.35||2.50|
|Natural Gas-NBP (USD/mcf)||4.00||4.50||5.00||5.50||5.50|