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Fitch Ratings Raises Mid-Term Oil and Cuts Near-Term Gas Price Assumptions

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. We have also reduced our 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 our expectation that production in the US will increase.

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).

We have increased our assumption for the Brent-WTI differential to USD5/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. We assume the differential will shrink to USD3/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.

We have halved our 2023 European TTF gas price assumption to USD20/mcf on higher-than-expected gas levels in storage in the EU, supported by demand destruction and ample LNG supplies. We expect the market in Europe to be balanced in 2023, although price volatility may persist, driven by the availability of LNG in global markets and further efforts to curb demand by industrial and residential users. Other TTF price assumptions remain unchanged as gradually improving European interconnectivity will help to reduce actual prices over the longer term.

Our reduced Henry Hub price assumptions for 2023-2024 reflect mild weather, both in North America and Europe, and expectations of rising production, particularly in the Haynesville and Permian basins. However, these modest cuts also reflect the response of producers to lower prices and inflated costs that could lead to a moderation or even reversal of production growth, while global LNG demand remains healthy. Our long-term assumptions continue to reflect the long-term marginal price.
Source: Fitch Ratings

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