Beta Operating Company LLC’s offshore oil and gas platform Ellen, right, and processing platform Elly stand in the Beta Field off the coast of Long Beach, California, U.S. (Photographer: Tim Rue/Bloomberg)

Oil Prices To Stay Between $40-60 A Barrel Despite OPEC-Led Cuts: Moody’s

Crude oil prices will remain rangebound between the $40-60 per barrel range despite exporting countries' decision to restrain production until the end of 2018, according to Moody’s Investors Services.

“We believe prices will stay within that range over the medium term amid increased production, still significant global supplies, and modest growth in demand,” Moody's said in a research note. The risks to oil prices, including reduced consumption at higher prices and increased, as seen in 2017, still persist, the note added.

The Organization of Petroleum Exporting Countries and its allies recently decided to maintain the oil production cuts till the end of 2018 as they extend their campaign to wrest back control of the global market from the American shale industry. In 2016, OPEC had agreed to the first production cuts since 2008, in an attempt to clear out global oversupply. By keeping the 1.8 million barrels a day of cuts in place for another nine months, oil producers are aiming to normalise inventory levels to their five-year average without overheating the market and drawing out a new flood of shale oil.

The result has been a decline in global crude inventories, which has contributed to increased oil prices this fall.
Moody’s Investor Services

The benchmark Brent crude oil is trading around $63 a barrel while the WTI crude oil is $58 a barrel. Prices rose more than 40 percent from the year’s low in June. The differential between the two benchmarks is wider than the historical average, according to the research note.

Political challenges in the Middle East , coupled with the assumption of OPEC extending their production cuts had bolstered prices in October and November this year, Moody's said. Despite that, prices are expected to be rangebound and “possibly volatile” next year.

Moody's said the higher prices will encourage increased supply “as countries reduce compliance with their production quotas”, especially if growth in demand is tepid. It will also support increased production in the U.S., the note added.

The credit rating agency, which uses oil prices as a metric to determine sovereign ratings too, has revised its expectation for oil and natural gas.

  • WTI/Brent crude: $40-60 per barrel
  • Natural Gas Liquids: $19-27 per barrel
  • Henry Hub Natural Gas: $2.5-3.5 per million British thermal units (MMBtu)