Continued strength in commodity prices, compression in refining margins and consolidation are among the top trends to look for in the oil and gas industry in 2006, according to debt-rating agency Standard & Poor's Ratings Services. Although commodity prices could dip from 2005 levels, a precipitous, sustained drop is unlikely in 2006, S&P reports. "The biggest wild card regarding what will happen to commodity prices in the near term is demand. The sustainability of strong demand growth in Asia raises concerns in the longer term should this heated level of growth moderate, but the U.S. Energy Information Administration forecasts that this growth will continue at fairly strong levels-around 2% globally-in 2006." S&P expects mergers and acquisitions in the oil and gas sector to continue to affect ratings actions in 2006. "In the near term, we expect oil and gas M&A to have a mixed effect on ratings actions," says S&P credit analyst Jeffrey Morrison. Other trends that may emerge this year include continued strong performance for oilfield services providers, rising costs for E&P operators, organic reserve replacement for the majors, the unconventional becoming conventional, share repurchases and increasing dividends, rising acquisition costs and labor constraints, S&P reports.
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