Fitch Ratings says in a recent report that the outlook is stable for all elements of the North American oil and gas industry. However, the international ratings agency does expect prices to moderate from current high levels. Later in 2004, crude oil will likely drop into the low $20-per-barrel range, driven mainly by growing exports from Iraq and production additions from producers outside of OPEC. A contributing factor will be the reluctance of Saudi Arabia to cede market share. "Intermediate to long-term, increased production from Iraq and non-OPEC sources will ultimately help replenish inventories globally and take market share away from OPEC," says analyst Sean T. Sexton. Natural gas prices are also forecast to moderate in 2004, to levels around $4 per thousand cubic feet. During 2005-08, Sexton thinks gas prices will stay in a range between $3 and $6 per thousand cubic feet. "In the intermediate-term, high natural gas prices will continue to destroy a significant portion of industrial demand in the U.S., and this industrial demand destruction will help to balance supply and demand and keep a lid on prices." Currently, integrated and upstream companies are enjoying strong balance sheets and attractive credit profiles. That situation should continue, as their realized prices will be strong enough to sustain ample cash flow. The outlook for drilling and service companies is also stable into the future, as producing companies must continually add reserves to stay in business. "There will always exist a base level of demand for drilling and services." Finally, the refining and marketing segment of the industry may be moving into a less volatile period in which it enjoys more pricing power. As low-sulfur specifications for gas and diesel take effect in the U.S., some smaller refiners may close and product imports may be reduced. While product prices should be robust, at the same time companies in this sector will have to invest more capital to meet the low-sulfur specifications.