Lower Oil Prices

Will curtail industry investment — Moody’s

By Benson Afful

Moody’s rating agency, has said, the coronavirus pandemic accelerates structural change in a collective demand for oil. Reducing the industry’s need to develop higher-cost reserves for reinvestment, and, support production levels and growth the next three to five years.

Moody’s has reduced its medium-term oil price assumptions US$45-$65/barrel (bbl), down from US$50-$70/ bbl.

The price range reflects the view that oil prices will remain highly volatile, with periods outside the top or bottom ends of the range. Geopolitical issues or attempts to manage supply by the OPEC-plus group of oil-producing nations will also lead to price fluctuations from time to time, it said.

According to Moody’s, government measures to reduce the spread of the coronavirus have restricted oil-intensive activities such as domestic and international air travel, which will recover more slowly than overall GDP.

High inventories of both oil and fuels globally will further slow the pace of recovery in oil demand and prices.

In Ghana, the government has predicted significant oil revenue losses due to the oil price collapse. Finance Minister Ken Ofori-Atta told Parliament in March that at an average crude oil price of US$30 per barrel this year, the government will register a shortfall in oil receipts amounting to GH?5.7bn.

The shortfall will lead to a reduction in the annual budget funding amount from petroleum revenues. It will also trigger a fall in transfers to the Ghana National Petroleum Corporation (GNPC) by GH?642m, according to finance ministry estimates, which is nearly 40 percent of the national oil company’s original budgetary allocation of GH?1.7bn.

Experts predicted oil companies might be compelled to seek external funds to help finance key investments. International oil companies in Ghana, such as Irish major Tullow Oil, have announced cuts to capital expenditure for 2020 in the wake of the oil price decline.

In response to the exceptional decline in demand, Moody’s said the global oil industry has mobilized to implement significant production cuts—about 10 percent from December 2019 levels.

The OPEC-plus group of oil-producing nations has agreed to cut oil production for two years by about 7m barrels per day (bbl/day) from February 2020 levels, starting in May 2020.

The International Energy Association (IEA) estimates that by late 2020, world oil demand will return to levels some 6.5m bbl/day, or 6 percent, below pre-crisis levels.