Credit rating agency Moody's has placed 120 oil and gas companies on review for downgrade, following the ongoing slump in oil prices, which has seen crude plunge to historical lows since the turn of the year.
The companies include Royal Dutch Shell, Norway-based Statoil, French oil giant Total and 69 US exploration and production companies. "These reviews reflect a mix of declining prices that are near multi-year lows, weakening demand and a prolonged period of oversupply that will continue to significantly stress the credit profiles of companies in the oil & gas sector," said the rating agency.
Earlier this week, Brent crude fell to a 13-year low of $26.19 (£18.3, €24.2) per barrel, after the International Energy Agency warned oil market "could drown in oversupply" after diplomatic sanctions on Iran were lifted, meaning Tehran can now ramp up production by 500,000 barrels per day.
On Friday (22 January), oil prices staged a timid rebound, with Brent gaining 4.89% to $30.75, while West Texas Intermediate rose 3.94% to $30.74 a barrel but Moody's warned the risks in the crude market remained substantial as oil prices have fallen 17% since the turn of the year.
"We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further," it said. "Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows."
Meanwhile, 55 mining companies, including Anglo American, Brazil-based Vale, US-listed Alcoa, and Canada's Barrick Gold, have also been put on review for a possible downgrade by Moody's.
"Slowing growth in China, which consumes and produces at least half of base metals, and is a material player in the precious metals, iron ore and metallurgical coal markets is weakening demand for these commodities and driving prices to multi-year lows," said Moody's analyst Matthew Moore.
"China's outsized influence on the commodities market, coupled with the need for significant recalibration of supply to bring the industry back into balance indicates that this is not a normal cyclical downturn, but a fundamental shift that will place an unprecedented level of stress on mining companies."