Moody’s joins growing “lower for longer” oil slump consensus

HOUSTON — Debt rating agency Moody’s Investor Service said Monday it had adjusted its oil price forecast to reflect a more pessimistic, slower recovery in 2016 and 2017.

The agency is the latest to join a growing consensus among analysts that oil prices will remain “lower for longer,” bringing more pain to an oil and gas industry that’s now struggling to keep production and revenues high while selling oil for about $45 per barrel.

Moody’s cut its price forecast for U.S. oil to $48 per barrel in 2016, $55 per barrel in 2017 and $63 per barrel in 2018.

The firm blamed resilient U.S. production that’s still sending large amounts of oil to market despite large cutbacks in investment and drilling. International producers have also contributed to the glut by increasing or holding production steady, and global demand isn’t growing enough to absorb the surplus in the coming years.

“Although capital spending has dropped substantially and the U.S. rig count has declined by more than half, U.S. production has only recently begun to decline,” Moody’s analysts wrote in their analysis. “Moreover, Saudi Arabia and Russia have both increased production to their highest levels since the early 1990s.”

The rating agency predicts that global oil production won’t fall until at least 2016.

Moody’s forecast a global increase in oil demand of 1 million barrels per day in 2015 and 2016 — not enough growth to immediately clear the surplus of oil.

In addition, Moody’s said that global crude oil inventories will continue to weigh on prices. In the U.S., inventories now stand at 468.6 million barrels, the highest level for this time of year in at least eight decades, according to the most recent Energy Information Administration data.

Iranian oil could also force oil prices lower, Moody’s said. Iran has estimated that lifted sanctions may allow it to boost production from the current level of 2.8 million barrels per day to 3.4 million barrels per day over about six to seven months.

“Although years of underinvestment have probably hampered the country’s production capacity significantly, the possibility or reality of higher Iranian exports will weigh on oil prices through at least early 2017,” the firm’s analysts wrote.