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.
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