Natural gas prices continued their roller coaster ride last weekwith changes in near- and long-term weather forecasts, and acolder-than-normal winter season which could lead to physicalshortages, according to Salomon Smith Barney’s weekly E&Pforecast. However, even though E&P shares declined 7% onaverage last week, there’s still plenty of gains to be had thisyear by both large and small players.

SSB analysts Robert Morris and Michael Schmitz said they believethat “confidence will continue to build” with relatively strongnatural gas prices, which will lead to more gains in 2001 for manyE&P “names.”

Bearing close watch is the weather outlook for the remainder ofthe winter, which SSB said, could lead to natural gas shortages.”Although temperatures are expected to moderate over the nextone-to-two weeks, a significant pool of arctic air will amass bythe second half of January and ultimately make its way down intothe United States,” Morris and Schmitz wrote in their weeklyreport. The surge of Arctic air follows the months of November andDecember, which they noted were “roughly 20% colder than the10-year average.”

The analysts said, “just 5% or more colder-than-normaltemperatures during the remainder of the season could result inactual physical shortages of natural gas as the 500 Bcf limitationon storage is tested.” However, “overall, we believe thatconfidence will continue to build with regard to sustainability ofrelatively strong natural gas prices,” which will improve the gainsof most companies in the sector.

Their top picks among the larger capitalization names includedAnadarko Petroleum, Apache Corp., Devon Energy and EOG Resources.Small-to-mid-cap companies expected to perform well includeChesapeake Energy, Cross Timbers Oil and Stone Energy, which “standout,” they said.

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