This news has got to be promising for all oil and gas producing companies. I like the Wood Gundy recommendation, "Jump in with both feet".
Wednesday, March 25, 1998
Oilpatch optimistic about a rebound
By CLAUDIA CATTANEO
Calgary Bureau Chief The Financial Post
While oil and gas prices tend to move on different cues, a sustained oil recovery to about US$18 a barrel could lead the entire energy
sector into an upswing, industry analysts say.
Canadian producers, who've been focusing on natural gas because of its positive outlook, would enjoy the best of all worlds because
they'll be able to take their pick of oil, heavy oil and natural gas projects, said Peter Linder, an analyst with CIBC Wood Gundy in
Calgary, who's urging investors to "jump in with both feet."
"If we have an US$18 oil-price environment ... producers will be dancing in the street this summer. The band will already be playing
because of the positive gas outlook."
A sustained period of higher oil prices will prompt some producers - particularly those who were unable to switch to natural gas - to
re-evaluate heavy oil production, some of which has been shut down in recent months, another analyst said.
While they used to move in the same direction, natural gas and oil prices have recently had only a marginal correlation to each other. The
market for oil is global, while the market for gas is North American.
Luckily for the sector, the two commodities went their separate ways during the oil-price slump that has troubled the energy industry since
last fall. While world oil prices plunged because of oversupply and weak Asian demand, natural gas prices remained relatively strong
despite weak winter demand.
Their strength sustained oil and gas stocks at higher levels than justified by their cash flows. But the two commodities tend to reconnect
and move in the same direction when one reaches extremes. That's because some big industries can switch fuels if one becomes too
expensive.
Last week, futures contracts for natural gas on the New York Mercantile Exchange bumped up because of bullish expectations for oil,
pointing to a relationship between the two, said Jim Oosterbaan, vice-president for gas services with Ziff Energy Group.
Oil prices recovered Monday after a five-month slump on news major oil producing nations are now committed to reducing output. A
meeting of members of the Organization of Petroleum Exporting Countries is expected to be held in Vienna next week to discuss the cuts.
But prices declined again yesterday on skepticism some producers may not deliver what they promise. West Texas Intermediate, North
America's benchmark crude, closed at US$15.92, down US59›. Still, there is increasing optimism the worst is over and price increases
are seen as more likely than a decline. |
