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Independents Pessimistic About Crude Price Run-up

Independents Pessimistic About Crude Price Run-up

The recent rise in U.S. crude oil prices due to the announced production cuts by the Organization of Petroleum Exporting Countries (OPEC) shouldn't stop Congress from pursuing legislative reforms for domestic oil and natural gas producers, the head of an independent producer association said yesterday.

"Certainly some people look at that [price rise] and say 'well your problem is solved because OPEC's going to announce reduction cuts.' We support restraint from the suppliers of oil around the world. The problem is that even after the announced cuts, the price of oil is still at about $14 a barrel. That translates into prices in the field from about $8 to $12 a barrel," said George Yates, chairman of the Independent Petroleum Association of America (IPAA).

"When you see it at $17 or $18 and headed north, you know that the oil industry can start getting back to work. The price [impact] as a result of the OPEC announcement is still extremely low. OPEC still does not seem to have any credibility in the market. And we are not going to let that be used as an argument against major legislative reform," he told reporters during a press conference on Capitol Hill. The price of West Texas Intermediate crude has inched above the $15 mark.

The briefing was held as part of IPAA's "Crude Awakening Campaign," during which it presented lawmakers with a "Oil Price Crisis Relief Resolution" signed by more than 50,000 producers urging the White House and Congress to approve tax initiatives, marginal well credits and other types of economic reforms to lift oil and natural gas producers from their currently depressed state.

A number of Senate and House lawmakers - Senate Energy Committee Chairman Frank Murkowski (R-AK), Sen. Pete Bingaman (D-NM), Reps. Wes Watkins (R-OK), Kay Granger (R-TX) and Lamar Smith (R-TX), to name a few - dropped by the briefing to show their support for independent producers. "The oil industry...has lost almost 50,000 jobs since the price collapse began in November 1997. Why isn't the White House supporting them and why isn't Congress passing tax incentives and relief for the domestic oil and gas industry?" asked Smith, who added it was long "overdue."

Independent producers and lawmakers called on the federal government to offer price support to the oil and gas industry similar to that which already has been extended to the domestic steel and agriculture industries. IPAA's Yates emphasized that the relief was being sought for both oil and gas. "This is not an oil industry and separately a gas industry."

He noted the industry shrunk 15% last year in terms of jobs, and that production was down 8% in one year, or 565,000 barrels/day. "We're [being] called upon by the administration in the next several years...to meet a tremendous growth in demand for natural gas. That's going to be very difficult to do as that [production] infrastructure erodes."

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