February 7, 2000
Analysts Expect Dip in Oil Prices
Filed at 4:54 p.m. EST
By The Associated Press
HOUSTON (AP) -- Even as oil prices flirt with levels last seen at the
onset of the Gulf War, a new study is questioning how long international
oil producers will continue to hold down production.
In the 14th edition of their joint industry outlook, researchers from Arthur
Andersen and Cambridge Energy Research Associates said Monday that
oil prices currently hovering near $29 a barrel are likely to drop in the
coming months as OPEC gauges what the world can afford.
``OPEC and key non-OPEC producers are keenly aware of the risks of
prices rising too much as well as the risks of prices tumbling down
toward single digits once again,' said the report, titled ``World Oil
Trends 2000.'
In short, said Cambridge Energy president Joseph Stanislaw, producing
nations want to strike a balance between robust prices and affordable oil
that won't break energy-dependent countries, particularly Far East
nations emerging from economic crises.
``These prices for one quarter are fine. For two quarters, it's unsure.
They don't want to destroy their markets,' Stanislaw said. ``The question
is, when does (the high-price environment) impact world economic
growth?'
The Organization of the Petroleum Exporting Countries likely will
increase production in the late spring to bring prices back down to a
more manageable level and blunt inflation, which could slow economic
growth and stifle demand worldwide.
Rising oil prices have had a limited effect on inflation in the United States,
though certain industries are beginning to feel the pinch. Several airlines
have tacked on $20 fuel surcharges to round-trip air fares, while a
number of cargo companies have also raised rates.
Few in the industry seem confident that the market will sustain $29 per
barrel, nearly triple the price in December 1998. That outlook explains
why exploration companies have been slow to act, said Victor Burk,
Arthur Andersen's top energy expert.
``If oil producers believe the high oil prices that have prevailed since the
second half of 1999 are sustainable, that belief could create investment
incentives to increase worldwide oil production capacity even more,'
Burk said.
OPEC is scheduled to meet March 27 to make a decision on production
levels. Currently, OPEC is holding back 6 million barrels of potential
daily production, the study said. About 65 million barrels are produced
worldwide each day.
Similarly, the World Bank said last week it expected oil to fall from near
$30 to below $20 later this year, a price level that would both be
profitable for producers and a relief for consumers.
On Monday, West Texas crude for delivery in March fell 42 cents to
$28.50 in trading on the New York Mercantile Exchange.
OPEC's likely target would be for prices in the low-$20 range, Stanislaw
said, but he cautioned that the market should expect continued volatility.
World Oil magazine, an industry trade publication, predicted in its annual
forecast last month that prices could stabilize between $25 and $28,
which should entice production investment in late 2000.
World Oil researchers forecast a worldwide drilling increase of 21.9
percent, to 60,343 wells drilled from about 49,500 in the bust year of
1999. U.S. activity is expected to see a more robust recovery, rising
30.6 percent to 24,416 wells drilled from 18,700 last year.
Still, in addition to restraint over price uncertainty, the merger frenzy by
the major oil companies and the slow recovery of independent
companies have taken the focus off of production, despite high prices,
said Bill Gilmer, chief economist of the Houston Branch of the Federal
Reserve Bank of Dallas.
``I don't think anybody is going to bet their company on an oil price
forecast,' Gilmer said. |
