Saturday, November 21, 1998

Slump in oil prices affects area businesses

By SCOTT SCHOLTEN

Staff Writer

Mired in the psychology of oversupply, crude has been stuck at $9.50 per barrel for the last three days, just 50 cents above the 12-year low reached in June.

West Texas Intermediate, the U.S. benchmark crude, sold for $9.50 per barrel Friday at crude purchaser Scurlock Permian's Cushing, Okla., gathering facility, the same as Wednesday and Thursday, the company said.

Futures prices on the New York Mercantile Exchange have hovered around the $12 per barrel point since last week, after Iraq gave in to United Nations demands for unfettered weapons inspections, heading off a military strike.

Petroleum futures rose as tensions rose surrounding Iraqi weapons inspections.

The slide started a year ago this month, partially in response to production increases announced by the Organization of Petroleum Exporting Countries.

Middle East tensions may fluctuate, but the fundamentals of the oil industry have been consistent for the last year.

"The oil market is glutted," said Bill Ryder, spokesman for Marathon Oil Company. Marathon Oil is a division of USX Marathon Group, the same company that owns Scurlock Permian LLC.

"The price of oil has been trending down for the whole year and is probably down $5-$7 per barrel compared to what it was last year," Ryder said.

Ryder said ever-present vagaries in the crude futures market are likely responsible for the change in oil prices over the last two weeks, though market fundamentals have stayed largely the same.

"Primarily, there's been overproduction, and now that some parts of the world are in economic decline, people are not optimistic about a turnaround in the price of oil anytime soon," Ryder said.

"Prices are essentially as low as they have ever been since World War II, at least in real prices adjusted for inflation," said Bill Core, president of the West Central Texas Oil and Gas Association.

"Prices are vastly below the point at which stripper well operators in this area can make money," Core said. "If it persists, we're going to see a dramatic economic hit to this area because more of us are in the oil business than we realize."

The yearlong languishing of oil prices -- a few $12 per barrel spikes aside -- will be reflected in cutbacks in local operations and possibly even outright closures, Core said.

"Folks that have been able to hang on aren't going to be able to much longer," Core said.

Scott Scholten may be contacted at (915) 676-6737, or scholtens@abinews.com.