Dubai crude recovery to support upstream oil firms, says Moody’s

The recovery in the price of Dubai crude will provide some support to upstream oil companies, which have seen their margins contracting significantly over the past year, Moody's Investors Service said on Monday.

"While oil prices remain weak, the recovery in the price of Dubai crude to $61.3 a barrel in the April to June quarter 2015 will provide some support to the earnings and cash flows of upstream oil companies," said Vikas Halan, a vice president and senior credit officer at Moody’s, speaking at the release of the latest edition of Moody's Asia Oil & Gas Quarterly.

Dubai crude is a medium, sour crude oil produced in the United Arab Emirates and is used in combination with Oman crude as a benchmark to calculate the price of sour Middle East crudes exported to Asian markets.

Saudi Arabia's state-owned oil company, Saudi Aramco, currently uses the Dubai/Oman benchmark when determining the price of its crude oil sold for delivery to Asia, according to the U.S. Energy Information Administration.

In particular, regional companies producing more oil or oil price-linked liquefied natural gas will likely benefit from the recovery of Dubai crude prices, Moody’s said in its report.

"We also expect that investment-grade exploration and production players, particularly national oil companies, will be better-positioned to weather the cyclical downturn in the oil and gas industry, given their greater financial flexibility, stronger liquidity profiles and better access to capital," said Rachel Chua, an associate analyst.

Dubai crude traded at an average of $61.3/barrel (bbl) in the April to June quarter 2015, representing a 16.4 percent increase from $52.6/bbl in the preceding quarter. It ended the period at $60.9/bbl. The improvement was largely due to stronger demand for refined products, the report added.