Exploration and production companies have managed to drive down their costs since oil prices crashed in late 2014. But Moody's believes it will be difficult for drillers to cut much deeper, and any reductions will be offset by a rebound in the prices that oilfield services companies charge.
For that reason, drillers won't be able to make significant returns on the capital they plow into new production unless benchmark U.S. West Texas Intermediate crude oil and natural gas prices cooperate, Moody's said.
Commodity prices have fallen close to Moody's threshold so far this year. WTI has averaged $49.34 a barrel, while natural gas prices were at $3.02 in the first eight months of 2017, the ratings agency said.
The analysis comes as U.S. crude recently rose above $50 a barrel for the first time in four months, hitting a five-month high of $52.86 on Thursday. The U.S. Energy Department projects oil prices will average $48.83 next year and $49.58 in 2018.
Source: Bloomberg Pro Terminal
Junior Trader Stefan Panteleev
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