Paula Dittrick
Senior Staff Writer
HOUSTON, Jan. 11 -- Oil and natural gas futures prices will be volatile and likely lower by Dec. 31 than they were on Jan. 1, analysts from Foresight Research Solutions LLC said in a Jan. 11 conference call.
"Despite week-to-week and month-to-month gyrations in oil prices, I think oil prices can be modestly lower this year for a variety of reasons, including slowing world oil demand and new production coming on stream," said Bernard J. Picchi, senior energy analyst.
But on a long-term basis, he believes oil prices will remain at a higher overall level than in the 1990s largely because there currently is little or no excess oil production capacity available worldwide.
"There are some very powerful features that are likely to support oil prices over the next 5-10 years," Picchi said. "One is the continuing growth in demand everywhere in the world—most obviously in China and India."
Meanwhile, oil buyers are willing to pay a premium because of the "perceived scarcity that there is no cushion to fall back on any longer," he said.
"I think the cushion will be restored. It won't happen overnight. The oil industry does tend to move in multiyear cycles. . . We could be in a 5-10 year cycle before we have this spare production capacity restored."
He doubts that "relative tranquility" can be restored to oil markets pending the eventual restoration of excess production capacity of 2-4 million b/d.
Natural gas
Foresight Research natural gas analyst Steven Parla forecasts some "very painful days" during 2005 because he expects gas prices to drop, perhaps starting in February.
"I do expect a gas price crash at some point in the first half of 2005, perhaps at $3.50/MMbtu or $4/MMbtu" on the New York Mercantile Exchange, Parla said.
He cited a warm US winter and high gas inventories as among reasons for gas price weakness. Other factors are robust drilling activity, gradually increasing LNG imports by the US, and declining industrial demand.
"Only hurricanes and a run to $55/bbl oil prevent gas prices from going substantially lower in the shoulder months this fall," Parla said. But he notes that the anticipated drop in gas prices will be short-term.
"I don't think it is tragic based on the strength of the secular supply-demand trends," Parla said.
