Standard & Poor’s said today it had taken rating actions on 14 European oil and gas companies, after revising its oil price forecast down.
Oil producers are braced for a long slump in prices, after the ratings agency recently revised its forecast to predict that prices will stay low through the end of 2016.
We note that many companies' current and prospective core debt coverage metrics are currently below our rating guidelines, and only our forecasts of recovering trends in 2016 and 2017 have prevented more downgrades at this stage.
Crude oil prices have more than halved over the past year, with international benchmark Brent crude falling from over $100 a barrel in the summer of 2014 to trade at $49.32 today.
Meanwhile, Shell’s chief executive Ben van Beurden warned oil prices will “spike” if oil producers follow through on large spending cuts and Saudi Arabia does not respond to dropping non-Opec output, the Financial Times reported.
Van Beurden said today he sees the “first mixed signs” for recovering prices, a recovery which is largely dependent on how Saudi Arabia reacts when production in non-Opec countries drops as a result of large spending cuts.
If they get it right and find a new balance, prices will recover. But what if Opec doesn't get it right and prices remain low for much longer?
This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility.