Economic studies


Latin America
Northern America
Central & Eastern Europe
Western Europe
Mid-East & Turkey
Change sector


  • Resilience to price fluctuations by leading diversified companies
  • Continued dynamic demand overall expected in 2019, which may sustain oil prices averaging USD 75 per barrel
  • Oil companies’ efforts to streamline their production


  • High debt levels, especially among shale oil companies
  • High volatility in crude oil prices
  • Overcapacity of some oil & gas services companies

Risk Analysis



Monthly averaged Brent prices at end October 2018 increased by 28% compared to end December 2017. Ongoing geopolitical concerns in the Middle East and in North Africa; coupled with higher consumption have caused prices to spike. The OPEC+ agreement on cutting oil production by 1.8 million barrel per day (mbpd) to rein in prices has been respected by members such as Russia and Saudi Arabia.

The number of active oil rigs in the United States was still growing at end October 2018 and stands at 870 (versus 741, +17.4% year-on-year). Accordingly, US Q3 crude oil and other liquids production increased by 24% YOY. The price hike has lured US oil producers to increase their cash flows.

US exploration and production bankruptcies rose in the first eight months of 2018: 22 filings, down from 15 in 2017. Moreover, the debt amount is up by 138% due to a high level of investment in shale basins. Nevertheless, US oil contractors saw their bankruptcy figures dropping: -70% for filings. The increased number of rigs alleviated the burden on them, who bore the brunt of low prices environment. Furthermore, global investment was up by 4% in 2017 in the upstream segment, according to the International Energy Agency (IEA): a slight rebound in an industry that saw its investments decreasing by 40% between 2014 and 2016.


According to the US Energy Information Agency (EIA), global oil demand should stand at 101.5 mbpd in 2019, a rise of 1.4% compared to 2018. Natural gas demand is expected to rise by 1.5% in 2019, around 3,886 billion cubic meters (bcm), stirred up by China, Thailand, Taiwan and Indonesia.

Demand in Europe is likely to stagnate in 2019, at almost 14.4 mbpd (+0.5%). Refineries benefitted from the steep fall in oil prices since June 2014 to improve their margins. European refineries capacity utilisation was stable in August 2018 y-o-y, but average Brent crack margins are losing momentum due to higher oil prices. Moreover, crude prices account for a significant proportion of their overall refining cost – up to 50% – and will add up with operational costs. In contrast, energy costs represent 28% of total expenditure for American refineries. Furthermore, competition from the Middle East will exert pressure on European refineries.

US demand for oil products should decelerate, with a 1.1% rise expected in 2019 due to soft economic prospects. Refinery margins should continue to decrease, after a peak of USD 24 per barrel in July 2015. September 2018 averaged USGC cooking margins reached USD 6.36/bl against USD 10.04/bl a month ago. President Trump's tax reforms aimed at reducing corporate taxes will help refineries, but higher oil prices and fluctuating demand will dent margins. Softening economic conditions in Latin America will not help US refiners.

Coface expects real GDP growth in the Chinese economy to reach 6.2% in 2019 due softening economic prospects abroad. As a result, annual Chinese energy consumption should grow at a slower pace (+3.4%), reaching 14.3 mbpd in 2019 from 13.8 mbpd, according to the EIA. Nonetheless, as the trade war is currently unfolding, Chinese trading companies are favouring Middle East crude over US’s. Chinese refineries will continue to import crude from Iran despite US sanctions, due to the expansion of the Shanghai futures market, which provides contracts based on the renminbi – a currency not concerned by the US sanctions, which are only targeting US dollar based contracts. Moreover, the United States has granted temporary waivers to China when importing Iranian oil.

India will again be one of the main oil consumer countries in 2019 in terms of growth, but with a less steep rise in demand (up 4.6% in 2019 after 5.5% in 2018), bolstered by the growing numbers of automobiles. India will benefit from its time-limited Iranian oil imports waivers, granted by the US as the country is dependent on Iranian crude.


According to the EIA, oil supply should rise by 2% in 2019 to 102 mbpd, after 2.4% in 2018. This is attributed to a better price environment for American shale producers, offsetting the OPEC+ production limitation agreement. Russia and Saudi Arabia are likely to agree on another production cut in 2019 to stabilise prices. EIA’s investments estimates (+5% in 2018) in the sector are still below the pre-2014 levels. Oil companies are targeting less risky fields (two thirds of the capital expenditures amount), to compensate declining production wells. Natural gas supply is expected to rise in 2019 by 1.1% to 3,880 bcm, induced by greater US liquefied natural gas (LNG) production which is competing with Qatar gas.

According to the EIA, oil production in the United States should reach a record high of 12.08 mbpd in 2019, up from 10.09 during 2018 (+11%). Rigs number has doubled since mid-2016, reaching 864 (91% of which are horizontal drills). US production has been boosted by the higher wells’ productivity (+20% production per rig at end June 2018 y-o-y). Prospects for shale oil investments will be limited by companies' financing requirements, as shown by the USD 50 billion of speculative bonds issued in the markets in 2018 (twice the 2016 total). According to a March 2018 Reuter’s survey, nearly one third of respondents pledged to pay dividends in 2018 to attract investors, as oil prices edge upwards. Net margin for the US oil sector in 2018 Q3 stood at 6% against 1% a year ago, and this metric will likely reach 7% by the end of 2018.

Western Europe has seen an upturn in leading companies’ financial results in 2018 after a dismal 2016. The E&P segment has benefited from the higher Brent prices: improved profits boosted prospects for European companies in 2018 Q3. Net margin reached 6.5%, a two percentage points increase YOY. European oil contractors are benefitting from higher oil prices, but the current levels are still too low to incentivise their customers to expand on expensive oilfields.

Chinese oil producers are lagging behind their Western rivals in terms of net margin: 2.4% at end 2018 Q3. Lower production volume and reserve write-downs have affected the sector. China’s oil production in 2019 is expected to stagnate, according to the EIA: 4.8 mbpd versus 4.78 mbpd in 2018.


Last update : February 2019