CIT Says Oil Prices Will Drop.

Business Editors & Energy Writers

LIVINGSTON, N.J.--(BUSINESS WIRE)--March 3, 2000

Industry Continues Positive Growth in 2000 and 2001

Compared to current prices, average oil costs for 2000 and 2001 are expected to decline slightly but still contribute to positive growth within the oil and gas industries according to CIT Equipment Financing's Oil & Gas Industry Outlook.

The Outlook, which was published this month, predicts that in the current year oil wellhead prices will average $22.50 per barrel - a 48 percent increase over last year and double the level set in 1998 - then decline slightly to an average of $20.50 per barrel in 2001. The forecast also predicts that prices will drive an increase in production with the number of oil rigs reaching an average of 185 in 2000 and 190 in 2001 - a significant improvement over last year's average of 128.

"We believe that current high oil prices pose a threat to the industry in terms of long-term growth," said Michael Paslawskyj, vice president of economic research at CIT. "OPEC and non-OPEC nations are beginning to understand this threat, as well as the fact that continued cuts in production will have negative ramifications on U.S. growth, and consequently, the global economy."

What Feels Good Now May Hurt Later

According to the Outlook, high fuel prices over the short-term can stimulate the industry by increasing the amount of drilling activity, but in the long-term have a negative impact. "Although consumers aren't particularly sensitive to price increases over a short period of time, if there's a perception that those prices will be long lasting they'll make permanent changes to reduce energy consumption," said Paslawskyj. "Eventually high fuel prices generate new energy supplies, as well as behavioral changes toward fuel usage that dramatically and permanently lower demand and prices."

Paslawskyj points to the 1970s as an example. "In 1973 oil generated 17 percent of domestic electricity," he said. "In 1999 it accounted for only three percent. This dramatic drop resulted largely from sustained high oil prices in the '70s, and the industry never recovered from them."

Gas Burns Bright

The Outlook suggests that gas will remain relatively stable with prices averaging $2.50 per thousand cubic feet (mcf) in 2000 and then dipping slightly to $2.45 per mcf in 2001. It also predicts that the number of gas rigs will grow to 675 in 2000 - up from last year's 496 count - and then dip slightly to 660 in 2001.

"Given the positive outlook for prices and rising demand for gas nationwide, I would not be surprised if drilling activity grows even more," said Paslawskyj. "Unlike oil, gas is a regional commodity and is only peripherally impacted by oil prices."

CIT Equipment Financing offers companies a wide variety of financial solutions including equipment leasing and financing, loans for commercial real estate, construction financing, franchise financing, debt refinancing, acquisition financing, and Small Business Administration loans. It is a unit of The CIT Group (NYSE:CIT). With $50 billion in managed assets, The CIT Group (www.cit.com) is one of the nation's largest commercial and consumer finance organizations.

For a complete copy of the Oil & Gas Outlook, please contact Ann-Margret Crater, vice president, marketing at [phone] or [e-mail].