By Simon Redmond
& Thomas A Watters
LONDON -- S&P Global Ratings has raised its price assumptions for Brent crude oil for 2018, in an article published today titled "S&P Global Ratings Raises 2018 Brent Oil Price Assumptions To $55; WTI Unchanged At $50; Assigns 2020 Oil & Gas Prices."
Our West Texas Intermediate (WTI) and Henry Hub natural gas assumptions remain unchanged for 2018 and 2019. In addition, we added price assumptions for 2020 to our price deck. We use the price deck to assess sovereign and corporate credit quality, in particular for exploration and production companies in accordance with the ratings methodology set forth in "Methodology For Crude Oil And Natural Gas Price Assumptions For Corporates And Sovereigns," published Nov. 19, 2013. We anticipate very few rating actions resulting solely from these revised price assumptions, which are effective immediately.
Our near-term oil and natural gas price decks broadly reflect our assessment of futures prices. We recognize the typical volatility of these market indicators, as demonstrated during 2017.
We also note the persistence of a wider differential of $6 per barrel (/bbl) between Brent and WTI recently, although we believe this differential is likely to be nominally smaller in 2018. We base our long-term price assumptions mostly on fundamental analysis including assessments of the marginal cost of oil and gas production, as well as supply and demand fundamentals, for example.
We continue to expect Brent and WTI to be range-bound in 2018.
We note that Brent has been trading above $60/bbl since Oct. 27, 2017, having closed at that price on Sept. 25 for the first time since July 2015. As present, futures prices remain above $60/bbl until November 2018.
We believe the price increases reflect ongoing OPEC production cuts, supply disruptions, and temporary production declines as well as positive market sentiment about demand.
Shipments from northern Iraq were reportedly lower in October and production from several other regions was down as well. However, we assume these specific supply issues will be addressed in coming months. What's more, we believe that continuing production growth may marginally exceed consumption growth in 2018.