Although independent producers' stock prices fell dramatically from March 31 to the end of June, they could drop even more, Wall Street oil analysts warned as 2001's second quarter ended. Weakened commodity prices from reduced demand have created a gloomy near-term outlook that camouflages still-healthy long-run growth, they added. "We believe that natural gas prices could fall to $2.50 per million BTU during the next several months as supply and demand come into balance," said Thomas R. Driscoll of Lehman Brothers Inc. in New York. He expects investors to value upstream independents' equities using price forecasts of about $3 per MMBtu for gas and approximately $21 per barrel for oil. Based on that price scenario, Driscoll placed the average E&P share price 3% above fair value at the end of June. Analysts at Frost Securities Inc. were forecasting a glut of both oil and gas. "This supply glut comes at what we believe could be the front end of a global economic recession that is reducing demand for the basic commodities," they reported. They downgraded not only the E&P stocks they cover, but also those of drilling contractors and other oil-service companies. So did analysts at Simmons & Co. International-even as they emphasized that longer-term fundamentals still remain favorable. "This is not a time to panic. The energy up-cycle is not over. We want to emphasize that our call is that the industry will experience an 'air pocket,' not a 'meltdown.' Thus, we believe a rebound is somewhere on the horizon and the task at hand is to identify the turning point, as energy stocks will anticipate the turn long before the numbers actually improve." They expect any impending softness to last for only two to four quarters and to remain oriented toward North American gas.