Fitch sees crude prices in $20 area next year

Reuters, 06.12.03, 2:39 PM ET NEW YORK, June 12 (Reuters) - Credit agency Fitch Ratings said on Thursday it expects oil prices to stay around $30 per barrel this year but fall to near $20 per barrel in 2004. In a conference call on Fitch's U.S. oil and natural gas industry outlook, the ratings firm said near-term crude oil prices were likely to remain around the high $20's to low $30's per barrel this year, propped up by low inventory levels. Fitch said the recent surge in natural gas prices was a "double-edged sword," because high prices could result in what Fitch termed "demand destruction." Next year, the return of Iraqi exports and increased output from non-OPEC sources like Russia and Angola "will lead to crude prices in the $20 per barrel area," said Sean Sexton, senior director of the Fitch oil and gas sector. Prices used by Fitch to model sector forecasts were $27 per barrel for oil and $4.50 per thousand cubic feet (mcf) in 2003 and $21 per barrel and $3.50/mcf for 2004. Iraqi exports are not expected to exceed one million barrels per day (bpd) "until August at the earliest," said Sexton. But he added that toward the end of 2004,exports could be "north of a million" and perhaps 2 million. Global demand growth was projected at about 1 percent for 2003. Sexton said the rating outlook for the upstream exploration and production sector was "somewhat positive," citing Burlington Resources Inc. (nyse: BR - news - people), Chesapeake Energy Corp. (nyse: BR - news - people) and Pioneer Natural Resources Co. (nyse: BR - news - people). Oil drilling is up 16 percent from first quarter 2003 and natural gas up 11 percent, said Fitch's Patrick McGeever. He noted that oil rig use was retracting somewhat recently but said the trend remained positive. McGeever said exploration and production companies' expanded capital expenditure budgets for second-half 2003, due to high crude oil prices boosting cash reserves, should help drillers. He also pointed to Mexico's state-run energy firm Petroleos Mexicanos SA's drilling expansion program as supportive to jack-up rig utilization. Pemex is expected to add 15 units this year, half for semisubmersibles and the other half for jackups. Pending royalty relief that could come from the U.S. Minerals Management Service for deep water drilling also may help the drilling sector. Second-half 2003 could find international drillers helped by greater geopolitical stability after the Iraq war, Venezuela's strike and the Nigeria election, Fitch said. Fitch noted that some payments to service companies may have been slow from Nigeria's state-owned firm during the recent election, but companies expect that to cease post-election. While the refining environment has "improved significantly" and the sector is rated stable, Fitch expects margins to remain volatile going forward. Fitch expects refiners to respond to any downturn in margins and cut back production "sooner rather than later" as the sector has quickened its response time. Longer term Fitch looks for gasoline imports to slip as new cleaner-burning gasoline regulations impinge on foreign refiners' ability to send product to the United States. Refiners' need for natural gas in their operations will have their profits hit by higher natural gas prices that are boosting production costs.