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Surplus capacity, softer demand, and lower oil prices have lead to a lean year for the petroleum industry in 1998, and the industry is expected to remain weak in 1999. Merger activity and nationalization of petroleum assets by several of the Middle Eastern members of the Organization of Petroleum Exporting Countries are also expected to change the industry's landscape in 1999, as well. Several of these stocks are attractive for the next three to five years, but the petroleum industry is untimely for 1999.

Oil prices have decreased following a solid beginning in 1997, but low oil prices are making certain US refineries more profitable. The demand for oil is expected to remain solid, and the existing supply is expected to meet the demand. This is likely to keep oil prices within a limited trading range. Refining margins are also expected to fall due to changeable oil and product prices. Investments in US refineries present conservative investors with a relatively secure three- to five-year total return potential.

Oil prices have risen in 1996 with the renewed armed conflict in the Middle East. The prospects for oil company earnings in 1996 are good with the expected demand for oil and strong prices, but may decrease in 1997 with increased supply from Iraq and a slower US economy. There has been excess capacity in the refining business and margins may be difficult to sustain. Financial strength, stability, and size make these stocks a safe investment.

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.

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.

Worldwide petroleum demand for 1995 will average 69.5 million barrels per day. This will continue in 1996, especially in the Pacific Rim and Latin America. North Sea production appears to ensure adequate supply. OPEC is meeting in mid-November 1995 to set member production quotas, and this will affect market share and prices. These stocks have good yields and are safe investments for the next three to five years.

The Organization of Petroleum Exporting Countries is maintaining current production through the end of 1995, though demand for oil is being met. US refiners are profitable with higher demand for gasoline, and there is a shift from European to Asian operations, reflecting changes in demand. Good petrochemical earnings will continue through 1996. Several of these stocks are good investments for the next three to five years.

Gulf of Mexico oil operations are now less expensive, due to technological innovations, which will improve financial results for exploring companies. International oil production is currently unstable and future supply may not be able to meet demand, causing price increases by 1998-2000. Refining profits have been weak in 1994 but should rise along with petrochemicals. Several petroleum stocks have good earnings possibilities in the three-to-five year range.

Integrated petroleum companies face tough competition from independent refiners, but industry experts expect higher profits over the next three to five years. The industry as a whole has weathered a poor economic situation fairly well, and several stocks provide high current yields and are therefore potentially rewarding. Stocks are expected to be supported by gradually increasing global oil prices and by strength in the petrochemicals sector.

An evaluation of the rate of return for various oil company stocks. There is also an evaluation of the downstream operations of various companies because of a decrease in petroleum prices and a change in laws governing the industry. A decrease in refinery production and a decrease in the number of service stations has also resulted. The electric automobile will probably not be a cause of concern for the industry.

The integrated petroleum industry is experiencing a strengthening of crude oil prices, but several issues could affect prices in the future. The strong price of crude is attributed to stronger demand and weakness in the supply sector, part of which is caused by civil war in Yemen and civil unrest in Nigeria. The effect of allowing Iraq to market their vast supply of crude and the political and economic problems in Russia that threaten development of the country's vast petroleum reserves are yet to be known. Further issues that could affect the future of this industry are presented.

Petroleum companies that specialize in refining and marketing offer the most timely stocks in the petroleum industry. A 30% drop in the price of oil from spring 1992 to spring 1993 has helped these companies, which consume large quantities of it. Integrated oil company stocks could be helped both in the near-term and the long-term if the Organization of Petroleum Exporting Countries cuts production.

Oil company stocks are unlikely to outperform the market in 1994. Oil prices seem unlikely to rise, given the combination of a surplus from the OPEC nations and reduced demand during the US and European recessions. The political problems of the former Soviet Union add an element of instability to any analysis, as it is impossible to predict its production or consumption levels. Oil stocks are at least as likely to decline as they are to remain stable.

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