Price drop to hit credit ratings
A DROP in oil prices could have a serious effect on European petroleum companies and may lead to a cut in credit ratings, according to a report released yesterday.
In their latest 'European Oil Majors Update', the ratings agency Fitch said that a "correction" in oil prices could pose a significant risk to major European oil companies' ability to maintain their current performance.
Although demand in India and China remains strong, demand within the Organisation for Economic Co-operation and Development (OECD) has flattened.
This, combined with the traditional drop in consumer demand in the summer months, has led to Fitch saying that a continuing drop in oil prices could cause significant challenges for oil sector companies.
"European oil companies will need to be even more vigilant in controlling costs in 2010 if they are to preserve profit margins, maintain cash flows, and limit reliance on borrowings," the agency said.
The ratings agency also raised the spectre of a slower than expected economic recovery across the continent.
This, combined with continued over-production by the OPEC, would add further pressure to the oil companies.