Indonesian government set the benchmark  price for crude palm oil (CPO) products for export duty is US$1,026.78 per metric ton (MT) of CPO in February 2021 - Photo: Special

JAKARTA (TheInsiderStories) – Low and volatile commodity prices have hampered free cash flow generation and delayed debt paydown, and tightening companies’ access to the capital markets, Moody’s Investors Service says in a new report. Supply-demand imbalance and economic slowdown in several large industrial countries also will keep oil and natural gas prices low including geopolitical tensions will cause price volatility.

The agency also rated, the energy companies face increasingly tight access to capital in 2020, weakening their liquidity, increasing their cost of capital, and intensifying default risk for companies with looming maturities. Low commodity prices also will limit opportunities for E&P companies to increase cash flow organically, and low-rated energy companies face the prospect of both difficult capital markets and weak conditions for M&A activity.

“We expect high volatility in oil and natural gas prices in 2020 amid growing production and slower growth in demand, as well as rising geopolitical tensions,” said Steve Wood, a managing director at Moody’s today (01/07).

In addition, he rated, rising production amid slower demand growth for oil and natural gas will cause prices to be volatile, while conditions for M&A activity will remain weak.

“In recent years fixed-income investors have largely satisfied energy companies’ capital needs, but low commodity prices since 2015 have hampered free cash flow generation and delayed debt paydown,” he noted.

As a result, Wood continued, energy companies face increasingly tight access to the capital markets in 2020, raising their cost of capital and weakening liquidity, while also heightening default risk for firms with looming maturities.

Production growth will outpace demand growth in 2020 amid economic slowdown in several large industrial countries, causing oil and natural gas prices to be highly volatile, Moody’s says. At the same time, short-term supply adjustments and rising geopolitical tensions in the Middle East will heighten volatility.

Despite capital spending cuts, EBITDA growth in 2020 will be essentially flat for oil and gas producers. Constrained capital spending by exploration and production firms will translate to flat demand for oilfield services providers, keeping their EBITDA at the depressed levels seen in 2019’ final quarter.

Slowing oil and natural gas production growth will however help midstream companies, with these firms seeing earnings grow in the 5 – 7 percent range.

In Asia, refining margins and petrochemical spreads will remain depressed in 2020, constraining earnings growth for the region’ downstream-focused companies. Meanwhile, despite the policies of the Donald Trump administration in the United States (US), state and regulatory opposition to certain pipeline projects and practices will come under increasing opposition, and will prove far more detrimental to oil and gas operators there.

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