CHICAGO--(BUSINESS WIRE)--The rating outlook for North American oil and gas companies is stable for 2014, reflecting the sector's balanced capital structures, strong cash flows supported by high oil prices, and robust liquidity, according to Fitch Ratings.
For 2014, Fitch believes that strong oil prices will continue to support the energy complex. Fitch's base case price deck reflects this belief with WTI expected to average $90 per barrel next year. Fitch anticipates that capex budgets will continue to outpace cash flows generated from operations as upstream producers continue to respond to high prices and the opportunity for strong returns in the current market.
A sharp downturn in global oil demand resulting in a significant sustained drop in crude oil prices ($65/bbl or less) would be a catalyst for a negative sector outlook, especially if capex budgets remain sticky due to issuer expectations of a quick rebound or less flexible drilling commitments.
Fitch believes the natural gas market will continue to stabilize in the near term. Pricing has firmed up, albeit at levels that continue to be on the low end of the historical range, and production increased modestly in 2013 after remaining mostly flat through 2012. Fitch expects to see modest increases in demand leading into 2016, when LNG exports and petrochemical expansions should support increased demand growth and potentially higher prices depending on the extent of supply response.
In the downstream, crude oil spreads narrowed in 2013, reducing windfall profits for location-advantaged refiners and underscoring the increased importance of traditional drivers of profitability. Fitch expects crude spreads to remain volatile in 2014, as there will continue to be periods of mismatch between domestic production growth and take-away logistic capacity. Although domestic demand remains tepid, discounted crude grades and cheap natural gas should continue to make U.S. refined products exports very competitive.
The full report '2014 Outlook: North American Oil & Gas' is available on Fitch's website at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2014 Outlook: North American Oil & Gas (Strong Oil Prices Continue to Support Energy Complex)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726499
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