Moody’s Forecasts Record Oil And Gas Profits, Free Cash Flow

Moody’s Investor Service has upgraded its outlook for the global energy industry from “neutral” to “positive”, forecasting “record profit and free cash flow” for exploration and production companies in 2022, thanks to a combination of strong commodity prices and spending discipline.

The ratings agency expects oil and gas supply constraints to keep prices high for twelve to eighteen months.

Beyond that, Moody’s said the “pace of improvement” with regard to earnings will start to slow by next year.

It’s not only exploration and production companies that are expected to show earnings boosts this year, either.

Moody’s says the bulk of integrated oil and gas companies will see impressive boosts, specifically pointing out increased refining earnings for this year.

Oilfield services companies are likewise expected to benefit on the balance sheet, but Moody’s says the smaller North American onshore service companies will enjoy the biggest earnings growth.

Also on Monday, Reuters reported strong first-quarter earnings expectations for U.S. oil refiners thanks to improved margins that have benefitted from tight supply caused by Russia’s war with Ukraine.

Citing IBES data from Refinitive, Reuters reports that a total of seven independent refiners in the United States are expected to post earnings-per-share of 61 cents. That is a dramatic comeback for refiners that posted losses per share exceeding $1.30 in the first quarter of last year.

The heating oil crack spread, according to Retuers, has now hit close to $41 per barrel (as of end-March), while profit margins for diesel and jet fuel have been at multi-year highs since the beginning of this year–and still rising.

Global refining capacity has been declining since the pandemic, forcing refinery closures that sustain that downward trend, while at the same time, rising fuel demand is making margins for refiners very attractive.

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