News ID: 188933
Published: 0859 GMT March 07, 2017

Fitch Ratings predicts price collapse in global oil market

Fitch Ratings predicts price collapse in global oil market

A major credit rating agency has predicted that oil prices would collapse in the second half of the current year, saying that increased activity of rigs in the United States could reverse the rising trend seen in the market in recent months.

"The recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting a portion of recent oil price gains," said Fitch Ratings in its latest market analysis published on Monday.

Fitch said average oil prices for the second half of the current year would decrease to levels below what was seen in the market in January and February.

Oil was traded in the $55-$60 range in those two months, mainly due to a decision in November by members of the Organization of the Petroleum Exporting Countries (OPEC) and several other oil producing countries to cut crude production.

Recent estimates suggest that OPEC members have strongly remained committed to the proposed cuts with a compliance rate of 94 percent. Non-OPEC members, however, have reacted moderately, with a report at the end of January showing that their compliance rate was from 60 to 65 percent.

The report by Fitch said oil and gas rigs in the US have increased their activity since May, adding that total production in the country could top nine million barrels per day over the course of 2017.

It cited other reports saying that the number of rigs in the country have seen more than a 50-percent increase to reach 756 rigs.

The higher output capacity and rejuvenated capital expenditure budgets were the two main triggers for the boom, the Fitch report said, adding that increased output would certainly lead to a collapse in global oil prices until the end of the year and prices would fall to about $52.50.

The agency said prices would rebound to $55 and then $60 in 2018 and 2019, respectively. A worse scenario was predicted for 2019, when oversupply could down the prices to $40 per barrel.

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