Deeper economic recession to weigh on WTI and Brent crude prices in 2020 and 2021, says Moody’s

Moody ́s Investors Service is reducing its near-term oil price assumptions for West Texas
Intermediate (WTI), the North American benchmark crude, and Brent, the main international crude
benchmark, as a deeper economic recession in the US and other leading economies further reduces
demand for oil products before an economic recovery in 2021.

“Exceptionally weak short-term prices will persist until production drops enough to ease the strain
on storage facilities already operating at or close to full capacity,” says Moody ́s VP – Senior Credit
Officer Elena Nadtotchi. “Significant supply adjustments in due course should help to balance the
market later in 2020, but the pace of the market’s rebalancing and rising oil prices will depend on
demand recovery.”

Moody’s price assumption for WTI is now $30 per barrel (bbl) for 2020 and $40 in 2021. For Brent,
Moody ́s sees prices averaging $35 per bbl this year and $45 in 2021. Oil production will decline in
2020-21 because of both the agreed OPEC+ deal and production shut-ins in the US and Canada.

Moody’s medium-term price band for North American natural gas at the Henry Hub—the industry’s
chief benchmark for wholesale US natural gas prices—remains at $2.00-$3.00 per million British
thermal units (MMBtu) as an accelerated reduction in supply will help support recovery in natural gas
prices in 2020.

Meanwhile, financial risk is rising and likely to remain very high for all but the highest-rated oil
and gas issuers. Low oil prices and storage shortages will most directly hurt the exploration and
production (E&P) and oilfield services and drilling (OFS) companies, particularly lower-rated issuers
with significant refinancing requirements in 2020-21.

Midstream companies will in turn need to manage heightened counterparty risks as E&P credit
quality deteriorates. The refining and marketing (R&M) sector, which is currently hit by working
capital outflows and low margins, will be the first to benefit from a recovery in demand.