Search

Demand for petroleum and natural gas is increasing in 1996, and oil and gas prices are rising or remaining firm. Production is also increasing in 1996, and several producers are planning higher output in 1997, as well. The oil and gas industry is timely for 1996, but earnings may swing from financial leverage and overseas political uncertainty. These stocks have prospects to outperform the market and are recommended for risk-tolerant investors.

Petroleum industry earnings and stock prices have risen with increased oil prices, smaller petroleum inventories, and a colder winter in 1996. Demand for petroleum products is increasing and may overtake supply by the end of the 1990s. Industry earnings are expected to be good through 1996 and 1997, even though oil prices may be volatile for the same period. These stocks have appeal for conservative investors through 1999-2001.

Limited oil exports from Iraq will help ease oil prices, and legislation allowing Alaskan oil exports has been signed by President Bill Clinton. Gulf of Mexico lease sales have also increased. The average reserve replacement ratios and finding costs for a five-year period have been calculated and the data show positive results for many companies. The petroleum industry is timely for 1996 and many stocks have capital gains potential.

Prices for oil climbed higher in Mar 1996 to $25-a-bbl, but may recede to $18-$18.50-a-bbl with adequate supply, over-production from OPEC countries, and larger amounts of crude oil from Latin America. There has been pressure on profit margins for US and European refining companies in recent years due to capacity, but this is improving. These stocks provide investors with good dividends, safety, and a good return over the next three to five years.

Higher natural gas prices, along with steady prices for crude oil, have increased earnings and margins for the petroleum industry. Lower supplies and greater seasonal demand will maintain gas prices through 1996. A 10% internal productivity gain and increased reserves are important factors for companies, many of which are highly leveraged with debt. These stocks are not timely for 1996, and investments must be carefully chosen.

Oil prices rose in 1995 with Asian-Pacific development, European economic recovery, and US economic expansion, although there is overcapacity. There is adequate supply for increased demand, especially from non-OPEC producers, but static production quotas have been voted by OPEC for its members. Cost cutting, automation, and refining are key earnings factors. Several of these stocks have three-to-five-year appeal, although the industry is now defensive.