If the weather over the next few months is “anywhere near normal,” the $5 natural gas price forecast made by Raymond James Energy analysts last month will prove to be conservative, they said in the latest “Stat of the Week.”

In an industry brief on what the new year will bring for the energy business, analysts noted that despite the “gloomy” start to 2002 — a declining rig count, downward earnings forecasts, relatively low energy prices and negative market psychology — the oil service sector and exploration and production (E&P) stocks “actually performed better than the broader markets” last year.

“Looking into 2003, we believe that with higher sustainable commodity prices, the energy business will see a rapid increase in industry cash flows, drilling activity and stock prices,” the analysts said.

The group affirmed their belief that gas prices will rise significantly this year. “Like last year, our 2003 price forecasts are well above the Street consensus with average gas prices $1.50/Mcf above consensus and average oil prices $4/bbl above the Street.” Last month, Raymond James was the first to forecast gas reaching $5/Mcf this year (see Daily GPI, Dec. 24, 2002).

Bullish not just on gas prices but oil prices as well, the analysts said they believe “we will see significant increases in E&P cash flows and drilling activity, resulting in higher oil service and E&P stock prices.” E&P company cash flows “could increase more than 50% over 2002 levels with capital spending rising more than 25% over last year,” which would result in a 20% increase in U.S. drilling activities this year, “with an exit rate 40% higher than today.”

If the overall market does not continue a downward spiral, said analysts, the OSX (Oil Service Index) “could post over 40% gains next year. Likewise, we see the S&P 1500 E&P Index posting 25% to 35% gains.”

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