Moody's Gloomy on Energy Price Outlook

The benefits of this prolonged period of very low oil prices are diminishing for some corporate finance sectors or even starting to have a negative impact on others, said Moody's Investors Service in a report published March 9.

"The exploration & production, oilfield services, building materials and steel industries continue to bear the immediate effects of low oil prices," it said in a summary of its report on its website. "The global oversupply, combined with additional exports coming from Iran and Opec producing at capacity, has led to a fundamental shift in the energy industries. Moody's price estimates for oil reflect this shift and is in the process of concluding ratings reviews of issuers in these industries owing to the deterioration in credit conditions linked to persistently low oil prices."

Unregulated European utilities and power producers are also grappling with the effects of low oil prices, according to the report Non-Financial Corporations -- Global: Net Benefits of Prolonged Drop in Oil Prices Diminish or Turn Negative for Some Sectors. 

Electricity prices in Europe have declined in tandem with oil prices, it said, in a week that saw RWE and E.ON in Germany post losses or impairments in their 2015 annual reports; and EDF lose its finance chief. The French state-owned nuclear giant has still not decided to build the Hinkley Point nuclear plant in the UK, which will use untested technology. It has been warned by Moody's that it must raise capital or cut debt to preserve its rating level. Losing it would add more to the cost of financing the project.

Many utilities have had to restructure or sell off businesses in order to cut their debt, as gas-fired capacity has been idled, sales volumes have fallen, purchase commitments upstream have to be met, and creditors still need payment.

William Powell