Fitch Ratings has cut its oil and gas price assumptions for 2023 and the 2024 European TTF gas price, reflecting weaker demand and robust supply in the near term. We have increased our 2025-2026 and mid-cycle oil assumptions due to expectations of gradually increasing demand, at least in the next five to seven years, which will eventually be met by rising production in OPEC+ countries, North America and potentially some other regions.
The lower assumption for 2023 oil prices reflects weaker short-term demand and concerns over slowing global economic growth and still resilient oil supplies, particularly from Russia, which redirected its exports to Asia. Although recent production cuts pledged by OPEC+ counties, particularly Saudi Arabia, offered some support to spot oil prices, their capacity will remain readily available to increase supply, when needed. The US and Canada are likely to modestly increase production in 2H23 and 2024.
The higher 2025-2026 oil price assumptions reflect our view that prices are likely to be affected by geopolitical tensions and still sound oil demand. Increased mid-cycle prices reflect a high degree of uncertainty over demand destruction associated with the energy transition and the marginal cost of supply in the sector by the end of this decade.
The use of oil in road transportation is the main source of uncertainty. The global vehicle fleet will continue to increase, driven by population growth and greater prosperity in developing countries. However, this will be offset by higher penetration of electric vehicles and traditional vehicles becoming more fuel-efficient. At the same time, the announced increases in upstream investments, including in the Middle East, will lead to greater oil production capacity. Fitch assumed that the energy transition will be gradual, with demand destruction becoming increasingly visible from the late-2020s and oil demand peaking around 2030.
We have reduced our 2023 and 2024 European TTF gas prices to USD12/mcf and USD10/mcf, respectively, due to ample LNG supplies to the region, curtailed demand and high storage levels (currently at 69%, well above comparable periods), leading to lower spot prices. Other TTF price assumptions remain unchanged as an increase in global LNG supply in the medium term, the build-up of LNG infrastructure in Europe and gradually improving European interconnectivity will help reduce prices to the normalised levels in a sustainable manner in the medium to long term.
Fitch’s reduced Henry Hub price assumption for 2023 reflects robust US gas production still outstripping consumption, with the rig count not declining as fast as previously expected. However, increasing US LNG export capacity and greater reliance of the European market on gas imports from the US should support prices in 2024, which we have kept unchanged.
Source: Fitch Ratings