Energy sector outlook turns positive

Higher commodity prices and resurgent demand will drive recovery, Moody’s says

oil pump

The outlook for the global energy sector has been upgraded to positive amid higher commodity prices, says Moody’s Investors Service.

In a new report, the rating agency said a sustained increase in commodity prices will support improving industry fundamentals over the next 12 to 18 months. As a result, Moody’s has upgraded its outlook for the sector from stable to positive.

“Pent-up consumer demand and increasing trade and manufacturing activity as the Covid-19 pandemic is brought under control are driving a rebound in global economic activity,” said Elena Nadtotchi, senior vice-president at Moody’s. “This, in turn, is quickening the pace of a recovery in demand for oil and gas through late 2021 and into early 2022.”

Moody’s estimates that global demand for refined energy products will rise by about 6% this year and by almost 4% in 2022.

“Strong earnings in the global [exploration and production] and refining sectors will see integrated oil companies’ earnings rise by a median rate of about 50%, though off a low base,” Moody’s said. “Adjusted EBITDA almost halved in 2020, and likely won’t return to pre-pandemic level before the end of 2022.”

Additionally, Moody’s said that “pent-up demand for travel and seasonally higher second- and third-quarter earnings in 2021 bode well for the refining and marketing segment through 2022.”