Fitch Ratings adjust oil and European gas price assumptions for 2024 and 2026

New Delhi [India], December 9 : Fitch Ratings has revised its near-term oil and European gas price assumptions, citing OPEC+'s sustained control over supply and ongoing dynamics in the energy market. The adjustments include an increase in 2024 oil price assumptions, driven by OPEC+'s commitment to support oil prices through extended quotas and additional production cuts.
According to Fitch Ratings, the Brent and WTI oil benchmark assumptions for 2024 have been raised, reflecting the deficit in the oil market, estimated to be around 1.2 million barrels per day (MMbpd) in the second half of 2023, according to the International Energy Agency (IEA).
Organization of the Petroleum Exporting Countries (OPEC+)'s recent decisions, including additional cuts in 1Q24, indicate an intent to address this deficit, provided compliance with production cuts remains strong.
Despite sanctions, Russian export volumes remain resilient, and US shale production growth is expected to moderate in 2024.
The IEA notes a significant demand increase of 2.4MMbpd in 2023, largely attributed to China's post-pandemic recovery.
However, demand growth is anticipated to slow to 0.9MMbpd in 2024, primarily due to deceleration in China and India.
Fitch Ratings suggests that crude prices will likely converge with mid-cycle assumptions over time, as OPEC+'s policies become less efficient, geopolitical factors stabilize, and demand growth continues to decelerate.
The adjustments also include increased assumptions for 2024 and 2026 European Title Transfer Facility (TTF) gas prices. Fitch anticipates that gas prices will remain elevated in the medium term, influenced by global liquefied natural gas (LNG) export capacity increases expected in 2026.
The ongoing expansion of LNG import infrastructure in Europe supports this outlook.
The European gas market experienced volatility in 2023 due to various factors, including seasonal fluctuations, geopolitical events, and labour strikes affecting LNG plants. Fitch expects prices to remain sensitive to external events in 2024.
The sustained decrease in gas demand in Europe throughout 2023, down by 20 per cent compared to pre-Russia's invasion of Ukraine levels, has led Fitch Ratings to view the likelihood of demand increases as low.
Factors such as higher industrial demand, a shift away from natural gas consumption strategies, or growth in petrochemical output would be required for a significant demand increase.
Henry Hub gas price assumptions remain unchanged, reflecting the continued outpacing of US gas production compared to consumption increases.
The decline in the natural gas rig count is expected to lead to slowing production growth, impacting Henry Hub prices with their characteristic volatility, particularly in the short term.