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Gold/Mining/Energy : Oil & Gas Price Economics -- Ignore unavailable to you. Want to Upgrade?

To: Rod Copeland who wrote (36)	12/16/1998 9:39:00 PM
From: Ed Ajootian	Read Replies (1) \| Respond to of 350

Rod, Now I know why that CHK preferred had such a high yield -- they just suspended the dividend! Here's an interesting excerpt from their release today: "While we cannot predict the future direction of oil prices, strong natural gas fundamentals should generate substantial natural gas price increases in the years ahead. We believe natural gas supply will decline because of reduced industry investment and demand will increase due to expected growth in the residential, industrial and power generation sectors.'' This is also my belief. Gas is the more environmentally friendly fuel and that matters a lot here in the US. BTW, wondering whether anyone would care to call what the Iraq bombing will do for oil prices tomorrow. They made a pretty good move on just the rumor.

To: Rod Copeland who wrote (36)	12/21/1998 11:52:00 PM
From: Ed Ajootian	Read Replies (2) \| Respond to of 350

Crude Oil: Unless significant cutbacks occur in the world production of crude oil, the price of crude oil will remain low throughout 1999 and into the year 2000. ------------------------------------------------------------------------ ----------------------------------------------------------------------- This long term forecast is based on the assumption that world production will remain at the current level and that refiners will continue to purchase crude at discount prices to keep tanks full. It also assumes world demand, except for the U.S. will remain essentially at the current level and that the U.S. demand is the critical variable in the supply/demand picture. U.S. stocks of crude oil, distillate and gasoline are high. Many refineries will find themselves struggling with high levels of one product or the other throughout this year. During the months January through March, gasoline storage will be a limiting factor and during the months May through October, distillate storage will be a limiting factor. The period from mid-January through mid- March will be a time of seasonally low demand, aggravated by any shut downs scheduled for this period. Imports will drop below 7.5 million barrels per day. During the spring run, in order to operate at maximum refining rates, which will not exceed 95% utilization, refiners will have to limit gasoline production to 50% of total production. The cost of crude oil will be linked to the avoided cost of imported gasoline. Refiners will determine the maximum amount they can afford to pay for crude oil to make gasoline as compared to purchasing gasoline to supply their market. Thus, the lowest available spot price of gasoline will directly impact the posted prices for crude oil. As a result, the spread between light (high API gravity) and heavy (low API gravity) crude oil prices will increase. Demand in the U.S. did not grow at the rate predicted by many forecasters and there is no indication that demand will increase significantly within the next couple of years. However, if prices remain as low as predicted in this forecast, it is estimated that U.S. crude oil production may decrease as much as 10% as marginal wells are taken off line. A 10% reduction will increase dependence on foreign crude oil by 630,000 barrels per day, which will help, but will NOT relieve the current world crude oil production glut. Overall, the next two to three years will be a time of oil industry consolidation and "survival of the fittest." The major oil companies, especially those planning mergers, are best positioned to take advantage of the situation. (International) State owned production will struggle to find markets for all the crude they can produce and much of the recently discovered reserves will remain in the ground until demand increases over the next few years. The recovery this time may be slow in coming. Years of energy conservation programs in the industrial world seem to have finally kicked in. The "baby boomers" are retiring and not commuting daily to work. Finally, the development of new gasoline/fuel cell technology supported by oil and auto industry are likely to significantly reduce U.S. demand for gasoline within the next few years. Production and oil field service companies may see almost no growth and will be forced to follow the lead of majors merging to consolidate resources and minimize costs. On the other hand, many industries, municipalities and consumers will reap the benefits of continued low product prices in 1999. As long as competition for market share continues among OPEC countries, crude oil supplies will remain higher than demand. At this point, with world tanks brimming with crude oil and going into a U.S. seasonal demand slump which will drop imports by an additional 1.7 million barrels per day for at least 4 weeks, OPEC would have to cut back production by 5 million barrels per day to begin to correct the problem. Once world inventories are lowered, the impact of reduced production could again cause changes in pricing. ------------------------------------------------------------------------ 3rd Quarter OPEC Production ------------------------------------------------------------------------ When quotas were established, Iraq was not included. ------------------------------------------------------------------------ ------------------------------------------------------------------------ Weekly Report Crude oil inventories increased by 3.4 million barrels from 334.8 to 338.2 million. Inputs to refineries were steady at 14.8 million barrels per day (bpd). Production of gasoline and distillate were about the same and imports remained high at 9.1 million barrels per day for the second week in a row, which is why inventories increased. The four week average for crude oil imports remained at about 8.6. Refiners added 2.1 million barrels of gasoline to inventories as they prepare for spring demand. Distillate inventories increase 3.2 million barrels climbing again to the maximum storage level at 152.8 million barrelss. The cold blast crossing the country this week should help draw down some of those inventories. World crude oil prices reported by EIA as of December 11, 1998: Saudi Arabian Lt (34 API) - $9.65, Nigerian Bonny Light (37 API) - $9.45, UK Brent (38 API) - $9.20, and Mexico Maya (22 API) - $5.80. Posted prices for crude oil as of December 18, 1998 were: Scurlock, West Texas Intermediate (WTI), $8.25; Louisiana Lt. Sweet Onshore $7.75, Oklahoma Sweet $8.25; Alaska North Slope $9.18; Kern River (13 API) $6.50; Kettleman Hill (34 API) $8.30; and Wilmington (17 API) $6.75. ******************************************************************************* I don't know how to cut & paste their chart of price predictions, and its a good thing because its pretty bleak. Here's the link to the whole article: oil-gasoline.com How many wells within 50 miles of Abilene are economic @ $8 oil?