New Delhi: According to the credit rating agency, the industry’s uneven, extended recovery will depend on a gradual improvement in demand as global economic activity picks up, particularly in the key consumption markets of China, Southeast Asia, and the US.
The pandemic had increased the pressure on the large integrated oil and gas companies to adjust their product mixes and reduce their carbon footprints. These companies seek further opportunities to increase operations with lower carbon intensity, and with redoubled efforts to reduce break even production costs.
Earnings for national oil companies (NOCs) will recover gradually over the next two to three years, but the extent and speed of recovery will depend on how soon normal economic activity resumes, and on any post-Covid policy actions that their government sponsors take, Moody’s Investors Service said in its in-depth report on oil and gas sector.
The report said that an extended oil price slump sparked partly by the pandemic will amplify disparities between stronger and weaker exploration and production (E&P) companies. This would mean that well capitalized E&P companies and oil majors will consolidate US shale assets, and the universe of leveraged E&P companies will shrink substantially amid waning bank and investor support as a prolonged downturn further discourages debt investors from the E&P sector.
Another change that Covid disruptions would bring is that cheap fuel prices will no longer stimulate demand for refined products as a crude glut continues. A recovery in fuel demand will depend on economic growth, and on the strength of the markets for particular refined products, the report by the agency said.
