The U.S.-China trade war and geopolitical flare-ups could threaten the
growth of North America’s upstream oil and gas as oil market volatility and
the specter of global recession rise, S&P
Global Ratings said in a new report this week.
S&P Global Ratings’ report
“North America: Rising Recession Risk Adds to Trade, Rate Uncertainty” found
that American consumers have so far propped up the world’s biggest economy,
but the trade disputes, heightened tension in the Middle East, and slowing
global economic growth will weigh on many industrial sectors in the U.S.,
including the energy sector.
According to S&P Global Ratings, the risk of a recession in the United
States beginning over the next 12 months has now increased to 30 percent-35
percent, up by five percentage points compared to the previous quarter.
Geopolitical tensions, especially in the Middle East with the attacks
on Saudi oil infrastructure, and trade disputes “are leading to more
frequent and intense periods of market volatility,” S&P Global Ratings
says.
The rating agency has revised down its outlook on the U.S. upstream oil
and gas industry from ‘stable’ in the second quarter to ‘stable-to-negative’
now. S&P Global Ratings’ outlook on the U.S. midstream oil and gas
segment—including pipelines and refinery businesses—remains ‘stable’.
The U.S. shale
production is indeed slowing down, according to the latest data from the
U.S. Energy Information Administration (EIA). The most recent EIA data showed
that American oil production fell sharply in July, dipping by 276,000 barrels
per day. Moreover, shale producers are now facing financial
stress and the prospect of stubbornly low prices.
According to a Moody’s
report from June, North American exploration and production (E&P)
companies will see their capital efficiency improvements stall this year and
next as oil prices stay range-bound. Moody’s study of the 40 largest rated
independent E&P companies in North America showed that companies are
unlikely to significantly cut debt further because of the prospect of meager
earnings and higher shareholder payouts.
By Tsvetana Paraskova for Oilprice.com
