Moody's changes global energy outlook to stable from positive

KUALA LUMPUR, Nov 19 -- Moody's Investors Service has changed its outlook for global energy to stable from positive, based on its expectation that the pace of improvement in fundamental conditions across the industry will ease over the next 12-18 months.

The rating agency’s senior vice-president Elena Nadtotchi said after a rapid rise in oil and gas prices in 2021, the expansion in earnings and cash flow generation in the industry will moderate next year, even as prices remain elevated. 

"Companies will consider increasing investments necessary to support existing production and modest growth, while also racing to meet heightened demands for shareholder distributions and improvement in returns on capital employed," she said in a statement today.

Moody's said the stable global outlook stems from the earnings directions for the exploration and production (E&P) and integrated oil segments, which dominate the global energy industry and which will be little changed in 2022 after delivering a strong rebound in earnings. 

"The ongoing recovery in global oil demand, gradual supply growth, and a manageable cost environment will provide a supportive macro backdrop for producers to maintain earnings above 2019 levels. 

"Many producers that did not invest sufficiently in 2020-21 will seek to boost capital budgets to stabilise production and stave off potential declines in volumes," it said.

The rating agency expects earnings prospects for refining and marketing (R&M) and oilfield services and drilling (OFS) companies to improve strongly through 2022. 

"The OFS sector will benefit in 2022 from significant cash flow momentum and is poised to increase aggregate cash flow by more than 10 per cent in 2022 from 2021 levels. 

"R&M companies' free cash flow will continue to improve their financial strength as demand and earnings increase through 2022, with fuel consumption returning to pre-crisis levels," it added.



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