At least one major investment banking firm has raised its oil-price expectations for 2000 while lowering its natural-gas price outlook for the year. "We are raising our 2000 West Texas Intermediate (WTI) and Brent crude price forecasts by $1.50 because we believe that a combination of market forces will keep oil prices high during the first half of this year," says Adam Sieminski, director and energy strategist for Deutsche Banc Alex. Brown in Baltimore. In the near term, oil inventories are likely to decline further, he says, and OPEC compliance with production quotas is likely to stay relatively high. The cartel's ministers aren't scheduled to review quotas until late March. "While it's possible that oil prices could still go higher before they fall, they're not likely to stay permanently at their recent levels." In January, oil prices eclipsed the $29-per-barrel mark-a nine-year high. The analyst contends that WTI will begin to dip toward $20 per barrel in the second and third quarters of 2000 as OPEC allows production to rise, and as non-OPEC supply surprises on the upside in response to higher prices. For second-half 2000, he forecasts an average $19.50 WTI price; for the entire year, $21; and for 2001, $19.50. Separately, Deutsche Banc Alex. Brown has reduced slightly its 2000 price outlook for natural gas at the wellhead from an average of $2.40 to $2.35 per MMBtu. This, however, doesn't indicate a deviation from the firm's fundamental bullish outlook for the commodity. "We continue to believe that domestic gas demand this year will likely outstrip supply, leading to lower storage, the need for higher import levels, and a sharp rise in wellhead prices," says Sieminski. For third- and fourth-quarter 2000, he forecasts wellhead gas prices of $2.50 and $2.60 per Mcf, respectively; for 2001, an average price of $2.50. The analyst estimates that in 2000, U.S. natural gas demand will grow by 700 billion cubic feet, or 3%, to 22 trillion cubic feet. Meanwhile, total domestic supply is expected to rise less than 100 Bcf, to 18.8 Tcf. This shortfall, he says, will be made up by Canadian gas imports, which should grow by 10% again this year, to 3.79 Tcf. -Brian A. Toal
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