Oil and natural gas prices will on average remain within the medium-term price ranges in 2021 -- Brent at $45 per barrel and Henry Hub gas prices around $2 per mmbtu -- as markets continue to rebalance amid an uneven global economic recovery, according to Moody's Investors Service.
"Sharply diverging growth trajectories between Asia and the US and Europe, and across different industries, will extend an uneven recovery in demand by geography and by fuel type, and will keep oil and gas prices volatile," Moody's said in a report today.
It added that Asian economies, including China and India, are leading the rebound in industrial and transportation demand for oil and should keep the oil market on the rebalancing path, even if a return of coronavirus lockdowns leads to zigzagging US and European demand.
The report said relief measures by governments to soften the economic impact of the pandemic led to higher fiscal costs and debt burdens in 2020 and for 2021, higher payments to their sponsors would add to the National Oil Companies' stress at a time of elevated capital spending to help speed up post-pandemic recoveries.
For India's state-owned Oil and Natural Gas Corporation (ONGC), shareholder payments in 2021 will likely remain close to historical levels regardless of its operating performance, since the Government of India relies on ONGC dividends for its fiscal budget.
However, ONGC's capital spending will remain high as the government is encouraging public sector companies to maintain or increase capital spending as a means to revive the economy. "These high shareholder payments and capital spending at a time of low earnings will force ONGC to increase its borrowing at some cost to its credit metrics," the report said.
Also, the economic strain of the 2020 pandemic will compel integrated oil companies to continue efforts to limit capital investments and preserve cash in 2021. However, producers will have more capacity this year to produce free cash flow, thanks to higher prices, low costs, a focus on best assets and marginal efficiency gains.
