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New Delhi: Ratings agency Icra has revised its business outlook of upstream oil sector to positive from stable as crude prices are expected to stay elevated and above $75 per barrel in the next 12-18 months.
The global crude consumption has averaged 96.9 million barrels per day (mbd) in 2021, up by 5.0 mbd from 2020. Further, global liquid fuels consumption is estimated to grow by 3.6 mbd in 2022 and 1.8 mbd in 2023 as per EIA, Icra said in a statement.
Oil demand will be essentially driven by increased vaccination drives and improved mobility, going forward, it said, adding that the OECD inventories are now lower than the 10-year average levels.
Despite rising rig count total US production has remained stable at about 11.2-11.7 mbd since March 2021. US production remains below the 13 mbd achieved in 2019-end. Additionally, the geo-political premium on oil prices has also risen owing to increasing hostilities between Houthis and UAE and Saudi Arabia and military build-up by Russia on the border of Ukraine, it said.
Sabyasachi Majumdar, group head & senior vice president – corproate ratings at Icra, said: “Actual production capacity for most OPEC+ member countries has declined materially in the last 3 years. Out of 18 OPEC+ members with quota, as many as 14 fell short of their targets in December 2021. Many countries are already maxing out their output levels or are close to it. If OPEC+ continues increasing production at the current level of 0.4 mbd every month the spare capacity would reduce to less than 1 mbd by mid of CY2022."
The rating agency also noted that the capital spending by large oil companies is likely to remain muted due to increased focus on maximising shareholder returns, uncertainty of oil prices in the long term, transition towards lower carbon emissions and ESG goals of large oil companies.
The extent of investments in the sector would be impacted by the energy transition strategies adopted by oil majors.
Increasing investor pressure, policy measures favouring climate-friendly norms and expanding presence of renewable power are likely to speed up transition towards clean energy and going forward supplies from large oil companies could reduce, it said.
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