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HOPE FOR 2003 LIES IN FORECASTS FOR LITTLE CHANGE

Bob Tippee

The oil and gas business is about to get better.

Indications of this happy circumstance come from the popular view that 2003 will pretty much duplicate 2002.

Of course 2002 was nothing for the oil and gas industry to cheer about.

Although prices of crude oil and natural gas were high enough to make most production profitable, drilling was moribund. Service and supply companies suffered. And downstream margins were poor for much of the year.

Normally, forecasters would see the seeds of recovery in these trends: demand stimulated by economic recovery outrunning production restrained by a year of sluggish drilling and refinery activity, pushing up prices, reinvigorating business.

But it's easy to discount normally hopeful forces. Nothing was normal about 2002.

The fear of terrorism and the possibility of war in Iraq made everything uncertain.

And the extent of capitalist corruption came into focus, shaking the confidence of investors and making clear the need for systemic repair.

The work began in 2002. Indictments hit some of the gluttons who wrecked Enron Corp. and other institutions of deception.

Late in the year, big investment banks submitted to big penalties for their roles in the economic fiasco and agreed to restructure operations to remove blatant conflicts of interest.

Also, housecleaning began at the US Securities and Exchange Commission, which let everything go too far.

But it's as easy to be cynical as it is to ignore inevitable turning points in oil and gas markets.

So, dazed by appalling events and uncertain about the future, everybody gravitates to the expectation that the new year will just mirror the old.

In this consensus lies hope.

In uncertain times, all anyone can do is extend contemporary trends and call the result a forecast.

But that kind of forecast is never right. The future never turns out to be an extension of contemporary trends. And it's always just before a major change that consensus forms around expectations for more of the same.

The business is at just such a point now. Change must be near. For much of the business, that can only mean improvement.

(Online Dec. 27, 2002; author's e-mail: bobt@ogjonline.com)


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