Gradual improvements in the global oil and gas (O&G) sector's performance next year will be driven by higher average prices, even though demand is unlikely to fully recover in 2021, APA-Economics reports citing Fitch Ratings says.
A quicker-than-expected energy transition could disrupt the sector. Most major oil companies are targeting steady emissions reduction and decarbonisation.
We expect a moderate increase in average O&G prices in 2021, coupled with continued spending discipline, to support a gradual recovery in oil companies' financial performance. OPEC+ will continue to make timely changes to supply, which should reduce oil price volatility, even though demand is unlikely to fully recover by year-end. As a result, we expect leverage of about 70% of issuers in our global O&G portfolio to decline in 2021 compared with 2020.
We assume that the low-carbon energy transition will be steady and not cause substantial disruptions to the sector in the medium term. However, acceleration in decarbonisation as a result of stricter regulation or technological advances could weigh on oil prices and put some ratings under pressure.
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