Lower-for-longer oil prices will weaken the fiscal and external positions of all rated oil exporters, “exacerbating” sovereign credit pressures as lower oil demand persists for several years following the coronavirus pandemic, Moody’s Investors Service said on Tuesday.
By contrast, sovereigns with greater policy flexibility and larger fiscal and foreign currency buffers are in a better position to weather a longer period of lower oil prices.
Robust sovereign assets will, however, shield negative credit pressures on Qatar (Aa3 stable) among some other sovereigns, Moody’s noted.
To account for the deeper and longer-lasting shock to global oil demand as a result of the coronavirus shock, Moody’s has lowered its oil price assumptions and expects that Brent will average $35 per barrel this year and $45/barrel in 2021, or $8/b below the rating agency’s March 2020 assumptions.
Medium-term oil price assumptions are now $45-$65/barrel, compared with $50-$70 in March.
“The deeper global economic recession that we now expect in 2020 in all major advanced economies and the drastic reduction in travel in particular have reduced demand for oil products beyond our previous assumptions,” said Alexander Perjessy, Moody's vice president and senior analyst.
“This lower-for-longer oil price environment will weaken all oil exporters' fiscal and external positions,” Moody’s said.
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