DBRS Morningstar Updates Oil and Natural Gas Price Forecasts: Midcycle Pricing Band Widened and Oil Price Forecast Raised

Crude oil and natural gas prices globally have exhibited extreme volatility this year. Projecting the trajectory of oil and natural gas prices in light of this extreme volatility is challenging and is best characterized by the wide dispersion in price forecasts issued by various industry pundits. We have modestly raised our oil price forecasts for 2023 and 2024 and widened the range for our longer-term midcycle pricing scenario. Also, we have raised our forecast for U.S. dollar natural gas price prices. However, our forecasts are still well below current benchmark prices for oil and natural gas and reflects our view that market fundamentals will soften and prices should trend toward our assessment of the marginal cost of supply for both oil and natural gas.

Key highlights include the following:

-- A key component in addressing key credit metrics for our rated issuers is our midcycle pricing scenario, which we have revised to a USD 50 per barrel (/bbl) to USD 70/bbl band for West Texas Intermediate (WTI) crude oil from USD 50/bbl to USD 60/bbl.
-- In our updated projections, our base-case scenario now assumes a WTI oil price of USD 90/bbl for 2022 and USD 65/bbl for 2023 (USD 60/bbl previously) and USD 60/bbl for 2024 (USD 55/bbl previously). Beyond 2024, our long-term price outlook is USD 60/bbl (USD 55/bbl previously).
-- Over the medium to longer term, we anticipate North American natural gas prices to trend lower toward the marginal cost of supply, which we estimate at around the USD 3.50/million cubic feet (mcf) level in the U.S. We have raised our 2022 forecast to account for higher prices realized in the first part of this year to USD 6.00/mcf. For 2023, 2024, and beyond, we are using USD 3.50/mcf for the price of natural gas in the U.S. market.

DBRS Morningstar oil and gas credit analysts note that “Since our credit metrics are driven by conservative forward-looking price projections and our longer-term midcycle pricing outlook, the impact of our price revisions is marginally positive for the credit profiles of our rated issuers but not enough to trigger rating actions based solely on higher pricing.”