Moody’s Investors Service, the bond credit rating business of Moody’s Corporation, announced that it is maintaining its medium-term price band for both Brent and West Texas Intermediate (WTI) crude, the main oil-price benchmarks globally and in North America. Moody’s is keeping its price band of US$40-US$60 per barrel (bbl) for Brent and WTI, respectively.
It is also maintaining its price band of US$2.00-US$3.50 per million British thermal units (MMBtu) for North American natural gas at Henry Hub—the industry’s chief measure of natural gas prices.
Terry Marshall, a Moody’s Senior Vice President, said that their medium-term expectations will extend through at least 2018. Their price band expectations are the most relevant price considerations used to estimate financial performance and determine ratings for corporates and oil-exporting countries, he said.
“Focusing on a range of outcomes within the price bands, analysts are better positioned to understand a given corporate or sovereign entity’s resilience to price volatility—a particularly important feature given the need for credit ratings to be durable across a range of outcomes,” Marshall added.
Notwithstanding ongoing high production levels of natural gas liquids (NGLs), prices for NGLs have stabilized in line with higher crude prices and modest gains in demand. As a result, Moody’s continues to assume a US$19-US$25 price band for natural gas liquids (NGLs). According to Marshall, ethane recovery should begin increasing in 2017 as a several-year demand increase begins, reducing high levels of ethane rejection and helping both volumes and prices.
The ratings agency has maintained its stress-case pricing of US$30/bbl for both WTI and Brent crude, US$2.00/MMBtu for Henry Hub natural gas and US$15 for NGLs. The stress price is used to help assess liquidity profiles of primarily low-rated companies, including room under covenants in bank credit agreements.
Moody’s periodically reviews its oil and natural gas price ranges as baseline approximations to evaluate risk when analyzing credit conditions of companies across industries and oil exporting countries, with a view to better estimate future financial metrics for each.