This report does not constitute a rating action.
S&P Global Ratings has reviewed its hydrocarbon price deck and has lowered its Brent and West Texas Intermediate (WTI) oil price assumptions for 2025 and subsequent years. We maintain our Henry Hub, Canadian Alberta Energy Co. (AECO), and Dutch Title Transfer Facility (TTF) natural gas price assumptions for the remainder of 2024 and beyond. We maintain our WTI and Brent price assumptions of $80 and $85 for 2024, respectively, noting geopolitical tensions coupled with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) production restraint, supporting oil prices (see table 1 and chart 1). However, global oil demand will grow at a significantly weaker pace this year, while production from mostly North America will help boost supply despite reductions in output by OPEC+. Given the modest changes to our price deck, we do not anticipate any direct rating actions.
| S&P Global Ratings' oil and natural gas price assumptions | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| New prices | Old prices | |||||||||||||||||||||
| WTI ($/bbl) | Brent ($/bbl) | Henry Hub ($/mmBtu) | AECO ($/mmBtu) | TTF ($/mmBtu) | WTI ($/bbl) | Brent ($/bbl) | Henry Hub ($/mmBtu) | AECO ($/mmBtu) | TTF ($/mmBtu) | |||||||||||||
| Remainder of 2024 | 80 | 85 | 2.5 | 1.75 | 10 | 80 | 85 | 2.5 | 1.75 | 10 | ||||||||||||
| 2025 | 75 | 80 | 3.5 | 2.5 | 10 | 80 | 85 | 3.5 | 2.5 | 10 | ||||||||||||
| 2026 | 75 | 80 | 4.25 | 3.25 | 10 | 80 | 85 | 4.25 | 3.25 | 10 | ||||||||||||
| 2027 and beyond | 75 | 80 | 4.25 | 3.25 | 10 | 80 | 85 | 4.25 | 3.25 | 10 | ||||||||||||
| bbl--Barrel. WTI--West Texas Intermediate. HH--Henry Hub. TTF--Title Transfer Facility. AECO--Alberta Energy Co. mmBtu--Million British thermal units. Note: Prices are rounded to the nearest $5/bbl and 25 cents/mmBtu. Source: S&P Global Ratings. | ||||||||||||||||||||||
To calibrate the potential use of cash flow volatility adjustments and resilience of corporate ratings and financial risk profiles, we maintain a ratings midcycle price reference point for our analysis of oil and gas producers. These prices are also unchanged: $50/$55 per barrel (bbl) of oil equivalent for both WTI and Brent and $2.75/$2.25/$8 per million Btu (mmBtu) for natural gas prices as determined by Henry Hub, Alberta Energy Co. (AECO), and TTF.
We typically publish our price decks at least every quarter. We may also publish when there are significant changes to S&P Commodity Insights' (SPCI) forecasts or when the hydrocarbon futures curves persistently deviate more than 20% from our published decks. S&P Global Ratings' corporate analysts continue to use the first three years in their financial modelling, analysis, and determining ratings on exploration and production companies. For further information, see the revised version of "Credit FAQ: How S&P Global Ratings Formulates, Uses, And Reviews Commodity Price Assumptions," April 20, 2023.
Chart 1
Supply growth outside of OPEC+ to exceed global demand growth in 2024 and 2025. SPCI anticipates full-year 2024 oil demand growth to moderate to 1.7 million barrels per day (bbl/d), compared with the 2.1 million bbl/d in 2023, with further moderation in 2025. Growth in 2024 is driven mostly by mainland China (0.5 million bbl/d), India (0.2 million bbl/d) and other non-OECD countries (0.3 million bbl/d). While about half the growth came from China in 2023, we expect Chinese oil demand growth to moderate this year amid weaker domestic demand, deflation, and a record downturn in the property sector.
On the supply side, we expect global oil supply surpluses in 2024 and 2025 (see chart 2). The growth is driven by supply outside of OPEC+, in particular, the U.S. and Canada, as well as Guyana and Brazil. According to SPCI, global oil supply will increase by 2.1 million bbl/d in 2024.
OPEC+ producers continue adjusting supply to support prices, losing market share to North American producers. The supply side of the equation is highly dependent on OPEC+ production cuts. OPEC+ producers have repeatedly slashed their output in 2023 and more recently, several producers have agreed to extend a 2.2 million bbl/d voluntary output cut, including 1 million bbl/d from Saudi Arabia through the second quarter of 2024. These curbs are in addition to the output cuts previously announced in April 2023 and later extended until the end of 2024. At the same time, in addition to its previously announced voluntary cut of 500,000 bbl/d, Russia announced it will continue to restrain output and exports, gradually reducing its output to less than 9 million bbl/d in June.
Chart 2
While it remains to be seen, there is always a risk OPEC+ will start reversing production cuts. While OPEC+ producers have succeeded in keeping oil prices high for the past few years as the global economy rebounded from COVID-19, they have done so at the cost of market share. OPEC and its allies' market share have shrunk to the lowest level. Considering the latest production-cut decisions, OPEC+'s market share will fall to around 34% in June from around 41% in April 2020.
Amid ongoing geopolitical situation, tensions related to the Russian-Ukraine and the Middle East unrest continue to fuel the fear factor about oil supply. While geopolitical unrest has heightened, the availability of considerable idle capacity serves as a supply cushion, limiting the impact of geopolitical disturbances on oil prices.
Furthermore, despite the U.S. economy exceeding growth expectations in late 2023 and maintaining positive momentum into early 2024, the growth prospects are lackluster for the eurozone, Japan, Canada, and the U.K. A sluggish global economic recovery might diminish demand, offsetting the possible price premiums from geopolitical tensions and OPEC+ production cuts. Therefore, we lowered our WTI and Brent prices forecast for 2025 and subsequent years, reflecting anticipated oversupply.
Related Research
- S&P Global Ratings Has Lowered Its North American And European Gas Price Assumptions For 2024 And 2025, Feb. 20, 2024
| Primary Credit Analysts: | Thomas A Watters, New York + 1 (212) 438 7818; thomas.watters@spglobal.com |
| Victoria Godunova, New York +1 212 438 0280; victoria.godunova@spglobal.com | |
| Secondary Contact: | Simon Redmond, London + 44 20 7176 3683; simon.redmond@spglobal.com |
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