TORONTO: Moody’s Investors Service has significantly lowered its price assumptions for Brent crude and West Texas Intermediate crude as continued high levels of production by global oil producers has significantly exceeded growth in oil consumption.

The potential lifting of Iranian sanctions could add significant supply to the market in 2016, offsetting or even exceeding expected declines in US production.

The rating agency says this will lead to a prolonged period of oversupply that will continue to keep oil prices low.

Moody’s has lowered its price assumption in 2016 for Brent crude oil, the international benchmark, to $43 from $53 per barrel and for West Texas Intermediate (WTI) crude, the North American benchmark, to $40 from $48 per barrel.

The rating agency expects both prices to rise $5 per barrel in 2017 and 2018, according to the report “Oil and Natural Gas Industry — Global: Threat of Prolonged Oversupply Drives Prices Lower.”

“OPEC oil producers continue to produce without restraint as they compete for market share, exacerbating the currently saturated markets,” says Terry Marshall, a Moody’s Senior Vice President.

“Russia has also greatly increased production, and the possibility that sanctions will be lifted on Iran in 2016 could flood the market with even more supply.”

Moody’s has also significantly reduced its medium-term price assumptions for Brent and WTI, to $63 per barrel and $60 per barrel, respectively.

These reductions reflect the rating agency’s view that the supply-demand equilibrium will eventually be reached at around $63 per barrel for Brent, but only at the end of the decade.

Despite the reduction, Moody’s says that these prices would still support some development of the world’s most expensive oil in an environment of lower development costs than in recent years.

The rating agency has also lowered its price assumptions for North American natural gas prices at Henry Hub to $2.25 per million British thermal units (MMBtu) in 2016, $2.50/MMBtu in 2017 and $2.75/MMBtu in 2018, a $0.50/MMBtu reduction for all from Moody’s previous assumptions. Henry Hub is the industry’s chief measure of natural gas prices.

Moody’s has also sharply lowered its assumptions for natural gas liquids (NGLs), which tend to move in line with oil prices.

The rating agency now forecasts NGL prices of $12 per barrel of oil equivalent (boe) in 2016, $13.50/boe in 2017 and $15/boe in 2018, with a medium-term price of $18/bbl, down from $25/bbl previously.

Moody’s forecasts that global oil demand will rise by roughly 1.3 million barrels per day in 2016, an increase from its previous assumptions as oil consumption picks up in countries such as the US, China, India and Russia.

Ongoing increases in OPEC oil production have offset growing global demand and led to a rapid build-up of oil inventories.

In October, inventories in the Americas, Asia and Europe stood at 4.4 billion barrels according to Energy Intelligence, compared with 3.8 billion-3.9 billion barrels in the last five years.

“Increasing consumption will not match the increase in supply,” said Marshall.

“It will take time for these large global inventories to unwind, and combined with the possibility of new supply coming online from Iran, we expect oil prices to remain lower for a longer period than previously anticipated.”

Moody’s updated price assumptions represent the baseline approximations it uses to evaluate credit risk of companies in multiple sectors.

Moody’s periodically revises these assumptions in order to better assess the future financial metrics of these companies.