Forecasting firm sees $30 a barrel oil prices by year end

| Thursday, October 25, 2001

A Houston-based forecasting firm, Groppe, Long & Littell, says the United States is moving into a new era of tight supplies and higher prices, following 14-15 years of very low prices for both oil and North American natural gas.

According to an article in the Oct. 19 Oil & Gas Journal, basic fundamentals of short supplies and growing demand will push oil prices near $30/bbl by the end of this year and boost North American natural gas prices as cheaper wholesale prices for electricity increases public consumption. The OGJ quoted Henry Groppe, founder and partner of Groppe, Long & Littell, a Houston-based market analysis and forecasting firm with a reputation for predicting major price changes. Groppe said, "We have run out of $1.50-$2/Mcf gas and $15-$20/bbl oil. When that happens to a commodity, you have to have significant increases in prices to bring things back in balance."

"The sharp drop in world oil prices since Sept. 11 is "an overreaction to the view that a soft economy is going to cause a significant decline in oil usage. Historically, it's just the reverse of that -- the only time we have a significant decline in oil usage is when we have big increases in oil prices," said Groppe.

"Actually, we're short of world oil today," he said. "If we get the normal increase of oil consumption in winter months, the Organization of Petroleum Exporting Countries will have to increase production to keep prices from going off the top of their scale."

Despite accelerated drilling, Groppe said, "The search for major new world oil supplies and major new North American gas supplies has been very disappointing."

According to the OGJ, Groppe said four of the five largest non-OPEC oil producers have surpassed their peak output.

U.S. production from the Lower 48 states has declined 50 percent since from its 1970 peak. Each of the other non-OPEC producers (the North Sea, China, Mexico) is following that same pattern," said Groppe. "Canada is the exception because of their heavy oil and tar sands with continued opportunity for long, slow, continuous increases in production."

Within OPEC, he said, only the key Persian Gulf producers still have the capacity to ramp up oil output.

That's particularly true for Iraq, which has "done nothing in last 10-11 years to increase production," said Groppe, "Iraq, we think, will be the swing producer."

As for U.S. natural gas, he said the nation had been lliving off existing gas reserves since the 1960s and that Canada has been carrying the U.S. market for the last 8-10 years. "If it hadn't have been for their willingness and ability to almost quadruple their exports, we would have had a severe gas crisis," he said. "And now they're in the same position we're in -- they've got a reserve life index of about nine years, producing and selling everything they can every day."

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