Moody’s Investors Service has said that the recent drop in oil prices is putting greater pressure upon the oil & gas sector, reducing company’s margins and making it harder than ever to operate. The organisation explained that when the falling prices are combined with weaker refining margins, the third quarter of 2015 is noting increased pressure for both downstream and upstream oil and gas firms. The news came as Moody’s revealed its latest publication focussing on oil and gas industry movement in Asia.
Vice-president and senior credit officer at Moody’s, Vikas Halan, stated: “The continued weakness in oil prices is credit negative for upstream oil companies. We expect these companies to post weaker results for the quarter ending 30th September 2015. Earnings will also continue to remain weak in Q4 given our full-year Brent price expectation of $55 (currently £35.75) per barrel.”
Revealing some of the forecasts, Moody’s said that Asian refiners are likely to see third quarter declines in line with the reduced refining margins for the area. Despite this, the margins are still strong when compared with figures for the beginning of 2013, showing that levels have recovered somewhat. Moody’s added that it expects to see stable margins throughout the fourth quarter, with expectations that the forecast $7.5 - $8.0 per barrel price will help to support earnings for Asian refiners.
Moody’s also revealed that the rated oil and gas portfolio for the months between July and September showed two positive rating actions and four negative actions. Moody’s analyst Rachel Chua said: “Most of the negative rating actions were in the oilfield services sector, driven by weakening liquidity and heightened refinancing risk. This follows continued erosion of earnings across the oilfield services sector, as upstream exploration and production companies reduced capital expenditure in view of low oil prices.” One of the positive rating actions revealed is SK Innovation’s upgrade. Moody’s expects the company, which operates in the refining and marketing segment of the industry, to see an overall improvement for its 2015 financial profile.
Moody’s latest Asia Oil and Gas Quarterly is now released and places the focus upon credit themes for the oil and gas industries in Asia. Contained in the report are articles including Declining Oil Prices Will Negatively Impact Upstream Producers in Q3, Improving Leverage Drives Positive Rating Actions for SKI and GS Caltex, and Refiners' Earnings Will Slide in Q3 Given Weaker Refining Margins.
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