Rating agency Moody’s says despite the increase in oil prices in recent weeks, it expects prices to remain lower for longer, which will worsen pressures for oil exporters.
Oil prices rose on Tuesday, as optimism about recent commitments from major oil producers to curb production offset concerns that resurgence in coronavirus cases could hurt fuel demand.
Brent crude rose 38 cents, or 0.9 percent, to settle at US$41.18 a barrel. West Texas Intermediate crude (WTI) rose 75 cents, or 2 percent, to end at US$38.94 a barrel.
However, Moody’s said it has revised its oil price assumptions further downwards to account for the deeper and longer-lasting shock to global oil demand as a result of the coronavirus shock, which will be only partially offset by some adjustments to supply.
According to the rating agency, the deeper global economic recession that is expected in 2020 in all major advanced economies and the drastic reduction in travel in particular have reduced demand for oil beyond its previous assumptions, saying “adjustments in supply are only likely to mitigate the impact of the demand shortfall on prices.”
“As a result, and notwithstanding the recent increase in prices, we now assume that Brent will average US$35/barrel (bbl) this year and US$45/bbl in 2021, or US$8/bbl below our March 2020 assumptions.
“We also expect oil prices to remain below their path pre-coronavirus, as long-lasting changes to oil-intensive travel and transport in particular lower oil demand for several years to come. Our medium-term oil price assumptions are now US$45-US$65/bbl, compared with US$50-US$70/bbl in March,” Moody’s said.
Analysts have predicted that the oil sector may not fully recover from the virus shock this year, and job losses in the industry will take a while to be regained.
Energy expert Paa Kwasi Anamua Sakyi told Business24 in an earlier interview that the extent of economic destruction accompanying the coronavirus crisis is thought to be much greater than the 2008 crisis, hence full recovery is not expected anytime soon.
“The recovery this time around would be slow and gradual because the oil sector took the hardest hit in the wake of the pandemic.”
He said it would be difficult to say demand and prices would get to the pre-Covid-19 levels, because there are several risks likely to distort that forecast.
Ghana, an oil producer, is likely to miss its revenue target from oil by some 53 percent due to lower-than-projected prices on the global market.
The government in the 2020 budget projected to receive US$1.57bn from oil revenues, anchored on a price prediction of US$62.6 per barrel. However, oil prices have dropped largely due to the pandemic.