Fitch: Credit-quality outlook mostly stable

Except in two categories, the credit quality of companies in the global oil and gas industry will be stable in 2010, according to Fitch Ratings, New York.

By OGJ editors
HOUSTON, Dec. 16
-- Except in two categories, the credit quality of companies in the global oil and gas industry will be stable in 2010, according to Fitch Ratings, New York.

The exceptions are refining and the drilling and service business.

The rally in crude oil prices from lows of this year’s first quarter is sustaining industry activity and financial profiles, the credit-assessment firm said in a Dec. 15 report.

But crude prices aren’t fully based on fundamental market forces, so the industry remains exposed to risks of changes in countries’ monetary and fiscal policies and shifts in inflation expectations.

“Should global economies and/or the appetite for oil as an inflation hedge weaken in 2010, oil prices could fall dramatically, leading to further downside potential for the sector,” Fitch says.

The outlook is better for upstream companies focused on oil than for those producing mainly natural gas, prices for which are expected to remain weak.

Refining “remains under the most pressure,” Fitch says, because of low utilization rates, weak margins, and falling consumption of oil products.

The drilling and services industry will “weaken modestly,” the firm says, although contract backlogs and elevated oil prices support activity and credit profiles of companies in this business sector.

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