Oil, gas prices expected to make sharp drop in 2004

Gary Park

Petroleum News Calgary correspondent

Export Development Canada, a federal government agency, expects oil and natural gas exports from Alberta will rise by 4 percent by volume in 2004, but revenues will slide by 13 percent.

Export Development Canada predicts oil prices will drop to US$24 a barrel from $30 this year and natural gas will ease to $5 per million British thermal units from $5.50.

Chief economist for the agency Stephen Poloz said the major factor in oil’s decline will be Iraq, which is currently 80 percent below capacity and should regain its place as a major supplier next year.

In addition, the completion of pipelines in the Caspian Sea region of central Asia will boost global supplies.

As oil prices decline, “gas prices will follow,” as leading users switch back to crude, he said.

Poloz said the trend towards “just-in-time” deliveries of oil and gas means that storage levels can be much lower than in the past.

Not everyone shares Export Development Canada’s view of commodity prices. Jason Myers, chief economist for the Canadian Manufacturers and Exporters group, said he expects “prices to stay high with declining supply”, while CIBC World Markets is counting on oil to remain at $30 through the winter and gas prices to grow as much as threefold.

CIBC based its prediction on low inventories, Organization of Petroleum Exporting Countries’ policies to prop up crude prices and falling production.