Fitch Ratings has lowered its corporate forecast assumptions for long-term WTI and Henry Hub natural gas to $70/bbl, and $3.75/mcf respectively as a result of increasing efficiencies and price pressure related to the U.S. shale boom. However, the long-term price for Brent remains unchanged at $80/bbl bringing the long-term spread between Brent and WTI up to $10.

A drop in median full cycle costs supports the lower long-term WTI price. Lower completion costs, longer laterals and more efficient rig crews have pushed costs and hydrocarbon recoveries lower in the U.S.; however, these dynamics have been difficult to replicate elsewhere, particularly internationally, leading to the increased spread.

"Additional cost reductions are likely this year as the full impact of lower costs washes across the industry," says Mark Sadeghian, Senior Director.

As U.S. shale-based production becomes increasingly efficient, U.S. natural gas prices have come under pressure, with Henry Hub spot prices averaging just $2.80/mcf in the year to date, down from $4.90/mcf average in 1H14. Fitch expects demand for natural gas will be tepid in comparison to the robust supply growth. On a trailing 12 month basis, U.S. gas consumption increased by just 1%, driven by industrial and power increases, while residential consumption declined.

Price deck assumptions are based on Fitch's outlook for near-term market conditions and longer-term, mid-cycle price expectations for crude oil and natural gas. Fitch's price deck is fundamentals-based and does not reflect any significant geopolitical or inflation premia, both of which have been key factors in oil prices over the last several years.
Source: Fitch Ratings