Back


[Moody's] Lower Projections for Oil Plus Potential Downgrades for Oil and Mining Companies

by Yvonne von Jena | January 25, 2016


Moody’s eyes sweeping downgrade of many Canadian oil and mining companies According to an article in the Globe, Moody’s Investors Service (Moody’s) is eyeing a sweeping downgrade of a sizable chunk of corporate Canada, which forms part of a broader look at energy and mining companies across the globe, amid the rout in commodities. Scaled back projections for oil prices Moody’s trimmed its 2016 forecasts for West Texas Intermediate and Brent crude, to just $33 (U.S.) a barrel, a cut of $7 for the former and $10 for the latter. It said it sees both rising by an average $5 next year and in 2018. The agency cut its outlook for crude “in light of continuing oversupply in the global oil markets and demand growth that remains tepid,” it said in a statement. “Iran is poised to add more than 500,000 barrels per day to global supply while OPEC and many non-OPEC producers continue to produce without restraint as they battle for market share,” Moody’s said, adding production now eclipses demand by about 2 million barrels a day. Further it added, “Lower oil prices will further weaken cash flows for E&P companies and the upstream portion of integrated oil and gas companies. This will cause further deterioration in financial ratios, including deeper negative free cash flow. Most companies are unable to internally fund sustaining levels of capital spending at currency market prices.” Several exploration, production and services companies placed under review In the oil patch, Moody’s put the ratings of 19 Canadian exploration and production and services companies under review for a potential downgrade. Several global giants were also listed. Many mining companies also placed under review Along with all that, a dozen Canadian miners were also put on review for downgrades. The reason is articulated by Moody’s senior analyst Jamie Koutsoukis who said in a statement, “Slowing growth in China, which consumes and produces at least half of base metals, and is a material player in the precious metals, iron ore and metallurgical coal markets is weakening demand for these commodities and driving prices to multi-year lows.”


Back