Moody’s: Producers to cut spending amid oil price tumble

As the price of crude oil continues to fall, credit rater Moody’s Investors Service predicted on Tuesday that oil producers will cut their spending 20 percent next year.

If the weak prices persist, companies could slash capital spending, according to the analysis.

“We expect exploration and production companies to reduce capital spending by around 20 [percent] and possibly more next year, depending on how long oil prices remain low,” said Steve Wood, Moody’s managing director.

{mosads}The slowdown represents a drastic change of pace for the industry compared with spending over the past three years as the U.S. shale boom skyrocketed, the analysis states.

The price of crude has fallen roughly 30 percent as global oil supplies have outpaced demand, putting U.S. producers in a tight spot on how to proceed with plans and projects next year.

“Global demand has not kept pace with strong oil production worldwide, leading to the recent drop in oil prices and to our revised price assumptions,” Wood said.

If oil prices stay at around $75 through 2015, companies will have to cut the amount of money available for reinvestment.

Moody’s expects offshore drilling to take a larger hit than companies with a sizable stake in the active Texas Eagle Ford and North Dakota plays.

“We expect that rising demand for crude will put a floor beneath crude prices in 2015 and beyond, limiting further price drops and pointing to a gradual correction,” Moody’s predicts.