Market ReportOil & Gas Market Wrap

Low oil prices push more oil companies into default

Rating agency says most of the second quarter's defaults were in commodity sectors

An oil rig
Moody's expects commodity-related sectors to stay under stress

Low prices of oil and gas, as well as other commodities, will help push the default rate for US oil and gas companies to 8.6%, and 10.2% for
metals & mining issuers over the coming year, according to rating agency Moody's.

The global corporate default tally increased to 88 for 2016 after 48 Moody's-rated issuers defaulted in the second quarter, a Moody's report said.

Most of the second quarter's defaults were in commodity sectors, with 23 in oil & gas and six in metals & mining.

The agency said that was similar to the first quarter, which had 40 defaults with 17 in the oil & gas sector and eight in metals & mining.

By comparison, there were only 49 defaults in the first half of 2015.

While the UK's decision to leave the EU resulted in noticeable volatility in the global equity markets, Moody's does not expect it to trigger a sharp spike in corporate defaults.

Most central banks are keeping accommodative monetary policies post-'Brexit' to ensure capital markets have sufficient liquidity, the agency said.

Sharon Ou, a Moody's vice-president and senior credit officer, said: "Even so, we have less reason for optimism within the commodity and related sectors. These are expected to remain under stress."

Meanwhile, rival rating agency Fitch said Europe's traditional gas suppliers, such as PJSC Gazprom were facing market pressures, mainly from the liquefied natural gas (LNG) market.

Fitch analysts said in a note: "We expect gas-to-gas competition in Europe to intensify, and European gas prices to become even more spot-based rather than oil product-linked."

The price of a barrel of Brent crude rose 2.9% to US$47.62 and the price of a barrel of West Texas Intermediate gained 2.6% to US$45.96 in late afternoon trading in London.

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