By Alessandro Albano
Investing.com - The backdrop of the Ukrainian conflict and Beijing's anti-Covid policies are the main reasons why S&P Global Ratings have raised their forecasts for crude oil and natural gas prices (US and European).
The rating agency increased its Henry Hub and AECO natural gas price estimates for the remainder of 2022 and 2023, raising its Title Transfer Facility (TTF) price estimates for 2023 to $25 per million British thermal units (mmBtu) from $18 in its previous estimates. The long-term price forecast for 2024 was also revised to $15 mmBtu from the previous $12.
For S&P, the price of natural gas will remain "high over the next two years", with European countries "seeking to reduce their dependence on Russian-sourced natural gas and increase their supply of liquefied natural gas (LNG) from the United States". In addition, the reopening of the global economy and the energy transition to alternative energy sources "will continue to support higher gas prices".
S&P then revised its estimates for Brent and West Texas Intermediate oil upwards. For the North Sea contract, which is linked to Russian production, prices for 2022 are expected to rise from $85 to $90 per barrel, for 2023 from $70 to $75 per barrel, and for 2024 European oil is expected to remain at $55.
In the case of US crude oil, forecasts have been raised from $80 to $85 per barrel for 2022, from $65 to $70 per barrel for 2023, while the US contract is expected to be priced at $50 per barrel from 2024 onwards.
The agency points to "volatile" oil prices, as importers of Russian black gold are looking "at other possible sources of supply and EU restrictions come into effect on 15 May". However, S&P warns that lockdowns in China continue "to offset concerns about supply shortages from Russia".
At the corporate level, while anticipating that higher price estimates will lead to near-term improvement for oil and gas producers at all rating levels, S&P remains focused on "the financial policies of investment-grade issuers and the intended use of any additional cash flows over the next two years".
Many speculative-grade issuers already have very robust credit profiles, with ratings locked in pending an improvement in their business risk profiles. As a result, S&P does not expect "any near-term changes in oil and gas prices to translate into widespread upgrades in E&P (exploration and production)".