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Stocks in the petroleum (producing) industry are not timely in early 1999 and they are not likely to recover while the price of crude oil remains low and has a negative impact on industry earnings. Production of oil in the US is expected to fall in 1999, but strategic combinations, cost-cutting and industry consolidation are some of the methods that oil companies are using to deal with the situation. Long-term investors who can tolerate risk will find individual gas-weighted stocks of some value, although the industry is not timely.

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.

Natural gas prices increased from $1.15 to more than $2 per thousand cubic feet, aided by low utility inventories and unseasonable weather in Nov 1995. Prices for petroleum have remained in the $17 to $20 per-barrel range, however, due to steady supply and other factors. Consolidation has lessened in 1995, though more mergers are expected. Several petroleum stocks have appeal for the next three to five years with manageable debt and rising cash flow.

Reduced demand, a slower US economy, and a warm 1994-95 winter are keeping natural gas prices low. The industry is also going through consolidation during 1995. This is likely to continue, due to production costs, overhead, debt, only adequate oil prices, and depressed gas prices. These stocks are now generally out-of-favor. Criteria for long-term investment should include safety, price appreciation potential, and cash flow.

Stocks in the petroleum industry have underperformed the market since 1991, due mainly to indebtedness, prices, and mergers. Consolidation is expected to continue in 1995 and 1996, as are strong oil and weak natural gas prices. Petroleum stocks are speculative and volatile and should be avoided by the more conservative investors. Improved business conditions for the next three to five years are the best investment basis.

Oil prices for 1995 at $16.50 to $20 a barrel are expected to remain at these levels, which is 30% above 1994. Economic growth in Western Europe, Japan and elsewhere, turmoil in the former Soviet Union, and Iraqi oil sanctions are factors influencing the supply-demand ratio for petroleum. Increased supply and reduced demand caused by weather and other factors have weakened natural gas prices. Investments in these industries for the coming year must be judged on an individual basis.

The natural gas industry ranks lower on the scale in terms of timeliness for investors to consider buying securities in industry-related firms. In Nov 1994, Natural gas prices are up to 35% below gas prices during 1993. OPEC plans to remedy this situation by keeping 1995 natural gas production levels the same as 1994 levels, thereby increasing the demand. Warmer weather has also affected gas prices and supply.

The fate of petroleum company stocks largely depends on how much of the company assets are in crude oil or natural gas. Those with most of their assets in these areas, such as Santa Fe Energy, Maxus Energy, and Union Texas, generally are subject to the most volatility. Others with a more balanced range of fuel products, such as Noble Affiliates and Pogo Producing, should offer more stability.

The petroleum and natural gas industries are likely to experience upturns in their prospects, but improvement is not likely until 1997. Prices for crude petroleum have begun to rise, but demand remains sluggish despite an improving US economy. Natural gas prices are expected to increase at a moderate rate, and demand should continue to be strong in the near term.

The petroleum industry has experienced losses and lower earnings, but long term growth prospects for 1994 through 1999 look good, as the economy improves. However, short-term prospects are not as promising, due to the recession and lower crude oil prices, which have sunk 25% to 30% below 1992 rates. Unlike oil, natural gas will do well during 1994, and has the backing of the Clinton Administration as a environmentally-friendly fuel.

The market for crude oil continues to be lackluster. This is chiefly because most of the world's major oil importers are currently in an economic slump. In addition, the US is using less crude oil and more natural gas. As Russia begins to produce more oil, and Iraq struggles for permission to enter the petroleum market, supplies look to increase, further hampering prices. Oil stocks are currently less popular with portfolio managers, providing opportunity for investors looking for long-term stocks.

Information contained herein has been gathered from sources believed to be reliable, including, but not limited to, Securities and Exchange Commission filings in Washington, D.C. However, accuracy or complete- ness [...]

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