Significant geopolitical developments, such as military escalation in the Middle East or changes in international sanctions, could disrupt supply chains in the global oil and gas sector, and increase its volatility, Fitch Ratings says. We expect global oil demand in 2025 to grow in line with 2024, but more slowly than in 2022-2023.

Fitch expects oil prices to decrease to USD70/bbl in 2025 from an average of USD80/bbl in 2024, due to moderating demand growth and higher production from non-OPEC+ countries, leading to oversupply. Geopolitical tensions, particularly in the main producing regions, such as the Middle East, will continue to influence prices. While these tensions pose risks, they are mitigated by OPEC+'s ability to manage supply. The group has delayed oil production increases until April 2025 and prolonged the complete reversal of cuts by a year, until end-2026.

Ratings in EMEA are supported by robust operating cash flow generation and cost discipline, as we highlight in our Global Oil and Gas Outlook 2025. Oil and gas prices will remain key for cash flows due to more challenging conditions in refining and petrochemicals. Marketing operations typically represent the most stable component of cash flows, thanks to fairly steady margins and increasing non-fuel sales. Credit metrics for the region will remain supportive of ratings in 2025. We expect the focus on reserve replacement and the energy transition to drive further M&A activity.

Production growth is limited for North American exploration and production companies, particularly in the investment-grade category. While capex has crept up, investment discipline largely continues to hold, with most drilling programmes weighted towards oil and liquids given lingering weakness in natural gas prices, which disincentivises drilling and completions. The subsector remains focused on returning capital to shareholders rather than organic growth. Structurally low leverage provides sufficient headroom to pursue opportunistic M&A transactions.

We expect stable credit metrics in APAC, despite high capex requirements, for most rated issuers in the sector, the majority of which are government-related entities, directly or indirectly linked to their respective sovereign. We expect Chinese national oil companies' (NOCs) crude oil production to increase in the low single digits, and gas production to rise by the high single digits in 2025. NOCs accounted for over 90% of oil production and over 80% of gas production in China. Their operating cash flow will remain robust and sufficient to cover capex.

Fitch expects Indian oil companies' capex intensity to stay high next financial year, as they invest in expanding refining, petrochemical and retail capacity, and in the energy transition. Investments by oil and gas companies in Southeast Asia also remain high to sustain production as most upstream assets are mature. Such upstream spending is weighted mostly towards gas.

Aggregate oil and gas production will increase across Fitch's portfolio in Latin America in 2025. Expansionary expectations in Brazil and Argentina will drive capex, especially at the NOCs, and larger private companies in both countries. This trend will be tempered by a moderation in upstream investment in Mexico and a focus on refining assets for PEMEX, and limited prospects for Colombian onshore assets in the next two years. We expect average lifting costs across the region to fall by 10% in 2025, as unconventional production continues to gain momentum in Argentina and Brazil. The addition of midstream infrastructure in 2025 and 2026 in both countries will help increase volumes and further dilute fixed costs. PEMEX will be subject to a cost-optimisation strategy, according to the latest financial plan from the Mexican government.
Source: Fitch Ratings