Moody’s Says Global Integrated Oil Industry Stable

A report published on Wednesday by Moody’s notes that the global integrated oil and gas industry outlook remains stable and the sector is likely to continue seeing a moderate recovery over the next 12-18 months. However, it adds that the recovery could be more subdued for international oil companies (IOCs).

Oil prices have generally averaged over US$75+ per barrel, and Moody’s has joined ranks with the wider market in noting that the oil sector is well past the bottom of the cycle.

Thomas Coleman, a Senior Vice President at Moody's, says, "The integrated oil companies on the whole enjoy a strong and competitive financial position today; with oil prices trading in a moderate level of about US$75 a barrel as the world's leading economies continue to emerge from the serious downturn of 2008-2009."

Overall, the report notes that the demand for crude oil will remain strong outside the OECD, as – well no prizes for guessing – China and other booming economies, most notably India, steadily increase consumption.

The report also notes that IOCs' earnings and cash flow are improving and could rise by almost 20% over the next 12-18 months - thanks to the H1 2010 revival in crude prices - but these companies remain exposed to fairly weak conditions in the refining sector, which is set to take on even more capacity in 2010 and in coming years.

In addition, high inventories worldwide and recent commodity price volatility amid deepening concerns over Eurozone debt issues further illustrate the risks to the sector, according to Moody's. On the Gulf of Mexico oil spill, the ratings agency noted that the "costs of drilling in the Gulf will escalate dramatically when the US government's ongoing moratorium ends, though deepwater drilling is unlikely to come to permanent halt."

© Gaurav Sharma 2010. Photo courtesy © Shell