KUALA LUMPUR: Moody’s Investors Service has raised its medium-term price band for crude oil to $45 (RM175)-$65 (RM253) per barrel (bbl) from $40 (RM155) – $60 (RM233)/bbl.
The rating agency said the revision underpinned by continued Organisation of the Petroleum Exporting Countries-led production restraint.
It noted that strong global demand growth has also contributed to declining global inventories, offsetting rapid increases in US shale production.
Moody's senior vice president Terry Marshall observed that prices in the upper half of the oil price-band will encourage increased supply as US production grows and countries reduce compliance with their production quotas
“Nevertheless, even with crude prices at the higher end of the new $45 (RM175) - $65 (RM 253) range in early 2018, we expect prices to stay within this range over the medium term amid better balance between increased production and growth in demand,” he said in a statement yesterday.
Moody's analysts viewed the look to medium-term expectations as the most relevant price considerations when assessing financial performance and ratings for corporate issuers and oil-exporting countries.
It said the emphasis on a range of outcomes within the price band helps to assess the resiliency to price volatility, and thus durability of credit ratings, for a given corporate of sovereign entity.
Moody’s said oil prices have firmed since OPEC's November 2016 agreement to cut oil production by 1.2 million barrels per day (bpd), while non-OPEC members, led by Russia, agreed to cut production by 558,000 bpd.
Its analysts noted that OPEC's production restraint compliance was mainly aided by Saudi Arabia and Venezuela due to domestic issues.
Marshall said the restraint contributed to the decline in global crude inventories and helped to push higher oil prices.
However, Moody's believed that prices will remain range bound and possibly volatile, amid increases in US shale production, reduced global supplies and potential noncompliance with agreed production cuts.