9:25 PM 3/6/1998
Oil prices continue slide as $12 per barrel foreseen
By HILLARY DURGIN
Copyright 1998 Houston Chronicle
The price of crude oil slid below $15 per barrel Friday, as the prospect that OPEC would act to prop up prices in the near term looked increasingly dismal.
In the absence of a decision by the Organization of Petroleum Exporting Countries to curtail production, market analysts predict that prices could fall another $3 per barrel.
"Between now and June we will see $12," said Mohammad Abduljabbar, senior economist at the Petroleum Finance Co., a Washington, D.C.-based oil and gas consulting firm. "The upside potential for this market is very limited. The downside potential is huge."
Oil prices have fallen 34 percent since early October, already prompting budget cuts at some independent oil and gas companies. Cutbacks in exploration programs and other operations could become more widespread if prices decline further, analysts said.
But even if oil drops to $12 per barrel, analysts don't expect them to be that low for long. And absent a prolonged period of low prices, it's unlikely the major oil companies, which plan over long time horizons, will cut their budgets, said Arthur W. Tower III, oil analyst at Howard Weil Labouisse Friedrichs in New Orleans. Tower point out that the average futures price of oil for the rest of the year is between $16 and $17 per barrel.
If prices remain around $17, "I don't think you're going to see any material reduction of capital expenditure budgets on the part of the major oil companies," he said. "You may see some reduction of capital expenditure budgets by oil-weighted independents."
The price of light, sweet crude oil for delivery in April fell 42 cents to close Friday at $14.91 per barrel on the New York Mercantile Exchange. That's the lowest close since April 1, 1994, when the futures contract fell to $14.79 per barrel.
In other energy trading, April heating oil was 90 cents lower at 41.15 cents a gallon; April unleaded gasoline was 1.40 cents lower at 48.30 cents a gallon; April natural gas was 1.2 cents lower at $2.129 per thousand cubic feet.
While there was speculation earlier this week that OPEC might hold an emergency meeting in March and act to curtail production, that hope dimmed Wednesday when Venezuela's oil minister said a prior commitment would prevent him from attending the meeting. Any decision to alter production quotas must be unanimously approved by OPEC's 11 members.
While OPEC said it would not make a final decision on whether to expand a monitoring committee meeting scheduled for March 16 to include all of its members, the market is pessimistic that OPEC will reduce output.
The five-month slide is being driven by a variety of factors that have upset the worldwide balance of crude oil supply and demand.
OPEC increased its quota of allowed crude oil production by 10 percent, to 27.5 million barrels a day, just as energy demand from Asia began to wane as a result of regional economic troubles. In addition, higher than normal temperatures in the Northern Hemisphere have weakened demand for heating oil.
"Either the producers cut back, or you have a further price collapse," said Ken Miller, a principal at Purvin & Gertz, a Houston-based energy consulting firm. "Right now we appear to be headed for a further collapse."
Miller noted that oil producers are moving large quantities of oil into inventories in response to weak demand from refiners. But storage levels are nearing capacity.
At that point, producers are likely to let their production drop, market analysts said. But the low prices probably won't last.
"It wouldn't surprise me to see it that low, but I'd still look for some recovery by summertime," Miller said.
In contrast to oil prices, natural gas prices have remained fairly stable. That has been good news for local independent producers, which are more weighted to gas than oil, said Michael Addy, executive vice president with Chase Bank of Texas.
"Our client base is much more sensitive to gas prices than oil," Addy said. "Oil going to $12 wouldn't be news to them, but gas going to $1.50 would be a much greater concern." |
