Bangkok--16 Feb--Moody's Investors
In a new report, Moody's Investors Service says that higher oil prices, which last month reached $100 per barrel for Brent crude, will have positive credit implications for upstream producers and negative ones for downstream refiners.
Renee Lam, the report's lead author and a Moody's vice president, based in Hong Kong, says, "The negative impact on refiners will depend on their ability to fully pass through their higher feedstock costs." However, she adds, "state control of prices for refined oil products in Asian countries such as China, India, and Indonesia will reduce the impact on end consumers, while sustained high crude prices will ultimately mean a higher burden of subsidies for these governments' budgets."
Lam notes, "For exploration and production (E&P), continued high oil prices will likely intensify E&P activities in the industry, leading to higher capital and operational expenses, which will also reduce the benefits that otherwise might have accrued on the output side."
She says, "In refining and marketing (R&M), we expect rising crude-oil input costs to increase refiners' requirements for working capital, thus adding pressure on their cash flow from operations as well as financing requirements."
A contributor to the report, Simon Wong, a Moody's vice president based in Singapore, adds, "Similarly, in countries with price controls, delays in payments of government subsidies or untimely adjustment of refined-oil product prices to reflect higher feedstock costs would further exacerbate the adverse impact on the R&M companies' liquidity. However, exporters of refined products, can reduce the negative impact by passing on higher feedstock costs."
A third author, Singapore-based senior vice president, Philipp Lotter, says, "A higher oil price means a heftier price tag for acquisitions, but for strategic reasons related to national energy security in many resource-poor Asian countries, acquisitions will continue regardless." He notes, however, that the balance of buying, may skew more toward gaining access to unconventional sources of energy that become increasingly economic to extract.
The report, entitled "Impact of USD100/Barrel Oil on Asia-Pacific Energy Producers and Refiners," is available at www.moodys.com.