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Global crude oil and gas prices are likely to remain at current lows for several years, with oil dropping to $25 per barrel if Iranian production more than offsets supply cuts elsewhere, Moody's Investors Service said on Tuesday.
"Crude oil prices continue the decline that began in June 2014, reaching lows not seen in more than a decade. We currently expect oil and gas prices to remain close to current lows for several years, as excess supply in the market is slowly absorbed," it said.
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Moody's estimated oil prices to be around $33 per barrel in 2016, which will rise to $38 a barrel in the next and to $43 in 2018. US Henry Hub natural gas will average at $2.25 per million British thermal unit (mBtu) in 2016, rising to $2.50 next year and to $2.75 in 2018.
"Moreover, there are downside risks to these assumptions if an increase in Iranian production more than offsets supply cuts elsewhere," it said, adding that oil prices in that scenario may dip to $25 a barrel and gas to $1.75 per mBtu.
The main cause of the low oil prices is an "inverse supply shock" as due to technological changes, excess investment in capacity, and geopolitical factors like Opec's lack of agreement on curtailing supply, supply has outpaced demand even as demand has continued to grow, it said. "Increased production now vastly exceeds growth in oil consumption, even with consumption growth by major consumers such as the US, China and India," it said.
Moody's said it expect exposure to low oil prices to shave off 0.8 per cent from real gross domestic product (GDP) growth on average across oil exporting countries in 2016 and to weigh further on the sluggish global growth prospects.
"For emerging markets overall, the combination of lower commodity prices, continued capital outflows, spillovers from slower Chinese growth, and country-specific domestic structural challenges have pushed down economic growth forecasts," it said.
