OPEC agreement crucial, banker says
Denver Post
A constructive OPEC meeting in March is key to reversing the crash in crude oil prices, according
to investment banker Tom Petrie.
"If OPEC doesn't get its act together, I think things will deteriorate so much further that it will
necessitate some real policy response from the U.S.," Petrie told a sold-out industry luncheon last
week.
Failure to reach an accord in March will sow the seeds for a successful meeting in the fall. In the
meantime, the industry will suffer painful second and third quarters, according to the principal
with Petrie Parkman & Co., Houston and Denver.
Could the ramifications of a failed March meeting jeopardize U.S. claims of being a great
economic power? "I could see Bill Clinton adding the oil industry to his list of welfare recipients
with some federal programs advocated by - of all people - the president and vice president Al
Gore," said Petrie. "The stakes are huge. The demise of King Hussein of Jordan, along with
other global factors, puts us in a position of recognizing that low oil prices are too much of a
good thing, despite their positive effects on the overall economy. It's a tax credit you didn't have
to sign off on for Congress, but it begins to feed on itself and the seeds of anarchy may be sown
in Russia - which is already in chaos - and elsewhere.'
The banker's outlook for oil prices is not overly optimistic. If OPEC players are ready to play ball
with one another (and Petrie suspects they are reaching that point), and if they cut half to
three-quarters of a million barrels per day, demand may begin to eat into the oil overhang and
usher in a new norm of $10 to $14 per barrel. "I take issue with the notion that we're looking at a
foregone conclusion that single-digit oil will be with us for the foreseeable future," he said.
"While we can simplistically go back to the Great Depression to compare this crash with the crash
at that time, the other alternative or analog is the late '60s and early '70s. We've had a fairly long
period where real prices are declining and we are drawing on our cushion of supplies, while in
the late '60s we were removing the last vestiges of rationing.
"Today, the notion of working off excess is very real - it's there in the North Sea, the North
Slope and elsewhere. Combined with today's commodity price conditions, which have hampered
production of Canadian and U.S. heavy crude, and pushed out projects in the Gulf of Mexico
deep water, it seems that tightening of the supply/demand equation is closer than you might
think."
While the hardships of the oil industry have taken center stage, Petrie forecast an even grimmer
outlook for the next few quarters for natural gas. "We're closer to the bottom in oil than we are in
gas," he said. Susan Klann of Denver is a contributing editor of Oil and Gas Investor magazine.
Her column about energy appears every other Sunday. Contact her at ssklann@aol.com.
(Copyright 1999)
_____via IntellX_____
Publication Date: February 14, 1999
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