Moody's energy price forecasts paint an upbeat picture

Credit ratings agency Moody's has provided an encouraging set of forecasts for the next 12 to 18 months, with higher earnings across E&P, refining and marketing and integrated and oilfield services companies.

Notably Moody's does not expect demand to cause soaring energy prices in the near-term. Rather, the Russia-Ukraine situation has created more than enough pressure on energy markets to drive price speculation on both oil and gas on the supply side, driving up the expected full-year earnings for most integrated industry players.

Moody's sees E&P companies posting record profits and free cash flow for the remainder of this year, as buoyant prices support the progress the industry has already made in strengthening balance books. Stronger fundamentals should filter through into greater cash flows which in turn feeds new investment, with Moody's forecasting a 25% capital expenditure increase in 2022, following two consecutive years of below-trend spending growth.

As the pace of earnings growth slows in the first few months of 2023, Moody's expects the impact to begin to tail off, however it says commodity prices will remain "well above" medium-term price ranges.  The trajectory reflects "acute stress" in markets over the Russia situation and compounds Moody's previous forecast upgrade that reflected the return of normal demand fluctuations post-COVID 19.