March 14, 2023

Fitch Ratings raises oil price assumptions for 2024-2025

categories : oil and gas

Fitch Ratings has increased its oil price assumptions for 2024-2025 on the expectation that geopolitical issues will extend the period before prices moderate towards lower, long-term levels.

It has also reduced its 2023 assumptions for European TTF and US Henry Hub gas prices for 2023-2024, reflecting reduced demand in Europe, primarily due to demand destruction, ample LNG supplies, higher-than-average gas levels in storage and its expectation that production in the US will increase, said Fitch Ratings.

Fitch assumes a Brent price of $75/bbl in 2024 (old assumption - $65) and $65 in 2025 (old assumption $53/bbl).

'Our increased 2024-2025 oil price assumptions reflect our view that it will take longer for prices to moderate due to tightening supply from Russia and Opec+’s cautious approach to supply increases. The market is likely to remain tight over the medium term, given fairly low spare capacity and increasing demand. However, we expect the market to gradually adjust, particularly thanks to production growth outside Opec (particularly in the US) and the prospect of capacity increases in Opec countries (particularly in Saudi Arabi and the UAE),' it said.

It has increased its assumption for the Brent-WTI differential to $5/bbl for 2023-2025, reflecting the wider current market differential, which is unlikely to shrink in the near term because of higher shipping costs and market volatility. It assumes the differential will shrink to $3/bbl from 2026.

'Our 2023 Brent and long-term oil price assumptions remain unchanged. The market is currently broadly balanced, despite China’s gradual reopening, which could potentially increase demand while oil exports from Russia have been re-routed so far, rather than materially reduced. Our long-term assumptions reflect falling long-term demand due to the energy transition.'

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