Moody's: Asian oil & gas companies to show mixed results in Q2 2016
Monday, July 18 2016 - 04:27 PM WIB
Upstream companies will benefit from a rebound in crude oil prices, with Dubai crude averaging $42.9/barrel (bbl) during Q2 2016 compared to $30.8/bbl in Q1 2016, and rising to a high of $46.8/bbl at end-June 2016, up almost 34% from the level seen at end-March 2016.
Moody's points out that the higher crude oil prices were because of: 1) delivery disruptions in Nigeria (B1 stable); which was in turn due to civil unrest; and 2) wildfires in Canada (Aaa stable).
"But our medium-term outlook for crude oil prices remains unchanged, despite the higher prices which have led us to revise upwards our estimated prices for crude over the next two years," says Rachel Chua, a Moody's Analyst. "Our overall assessment is still that oil market participants are facing a difficult operating environment."
Chua was speaking on the release of Moody's latest edition of its Asia Oil & Gas Quarterly, a publication focusing on credit themes in Asia's oil and gas industry.
Moody's explains that downside risks remain, because global inventories are still very high, with OPEC output at record levels, and keen competition between Saudi and Iranian producers for market share, against the backdrop of weaker global economic prospects.
Moody's further explains that refining and marketing companies will be negatively impacted by a fall in GRM in Q2 2016. Specifically, the average GRM for Singapore complex weakened to $3.9/barrel (bbl) in Q2 2016 compared to $6.6/bbl in the previous quarter. The GRM increased towards the end of the quarter, averaging $4.9/bbl in June 2016, after falling to average $3.5/bbl in May 2016 and $3.2/bbl in April 2016.
The weakness in GRM was largely attributable to the softer light distillate crack spreads in the region.
"Refiners will likely post weaker results in Q2 2016 relative to Q1 2016, but they will also benefit from inventory gains, given the uptick in crude prices," adds Chua.
Middle distillate spreads remained healthy during Q2 2016, supported by higher demand in and outside of Asia. As the refiners increased their utilization rate to take advantage of the attractive gasoil and kerosene product spreads, naphtha output increased, providing additional supply to an already oversupplied Asian market. As a result, naphtha crack spreads fell substantially.
"The weak product spreads should improve in Q3 2016, because during that period, refineries typically undergo scheduled maintenance; a situation which will reduce supply in the market," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.