Moody's cuts 2016 oil price outlook by $10 to $43 for Brent

(Reuters) - Moody’s Investors Service on Tuesday slashed its 2016 oil price outlook on expectations of a prolonged supply glut, saying additional production from Iran, should sanctions be lifted, would offset any slowdown in output from the United States.

An oil pump jack can be seen in Cisco, Texas, August 23, 2015. REUTERS/Mike Stone

The ratings agency cut its 2016 Brent price assumption by $10 to $43 per barrel and its WTI price forecast by $8 to $40.

Prices for both benchmarks would increase by $5 per barrel in 2017 and again in 2018, Moody’s said in a note.

The agency raised its forecast for growth in global oil demand, saying it would increase by 1.3 million barrels in 2016 on higher consumption in the United States, China, India and Russia.

A supply-demand balance would be reached at a Brent price of $63, but only at the end of the decade, Moody’s said.

The agency maintained its negative outlook on the oilfield services and integrated oil and gas, exploration and production sectors. Apart from increased exports from Iran, this outlook also reflected the possibility of less demand from China due to a slowdown in its economy.

“Low commodities prices and uncertainty about the pace of their recovery will continue to limit exploration and production activity in 2016, leading to spending cuts, stalled production growth and volume declines,” said Steve Wood, managing director of Moody’s oil and gas team.

Growth will flatten in refining and marketing while slowing in midstream, said Moody’s, which maintained a stable outlook on those businesses.

Oil prices edged higher on Tuesday as a slump to near 11-year lows in the previous session triggered investors’ buying appetite.

The rout in prices stems from a huge overhang in crude oil production, with output exceeding demand by 500,000 to 2 million barrels a day. Some analysts expect onshore storage sites to fill up completely in early 2016.

Moody’s also lowered its forecasts for Henry Hub natural gas prices by 50 cents per million British thermal units in each of the next three years to $2.25 in 2016, $2.50 in 2017 and $2.75 in 2018.

Reporting by Arpan Varghese in Bengaluru, editing by William Hardy and Lisa Von Ahn