Front page news has a way of slipping onto the back pages sooner or later. Whether it is the Enron trials, the VP shooting a hunting partner, the Iraq War or any other sensational news story, it will eventually cease to be hot news and be assigned to junior journalists. The same will happen with that grimy, greasy, hydrocarbon substance called crude oil – whether it trades at $30 per barrel or $100 per barrel.
To complicate our current view, we often hear "experts" claim that the world runs on oil and we are running out. Others tell us that oil has gone up seven times its 1998 low price and that it is sure to go up another seven-fold from here. No one knows how high this current cycle will go but there are some things we do know:
n Oil went up ten-fold in the 1970s, from $3.50 to $35.
n Oil retreated to less than one-third of its high to $10 in 1998.
n Alternative fuels are coming to the market: ethanol, oil sands, bio-diesel, and wind power.
n The worldwide increase in petroleum usage last year was only 1.8 percent.
n Public oil companies are spending more than 200 billion dollars a year exploring for oil.
Rising oil prices have not been the 800-pound gorilla that dominates the entire market, nor have there been any signs that this animal will break all the good china and crystal in our economic castle. With all the noise about three-dollar gasoline, total gasoline sales are up almost 2 percent this year – a greater increase than last year when those prices hovered around two dollars.
Of course, gasoline prices are a source of frustration when we pay $50 to fill up a tank. Newspapers and congressmen have made lots of noise and many have called for action to alleviate the high prices. Short of coming up with another 100 billion or so to do more drilling or authorize more drilling in Alaska or off the coast of California, there is not much that can be done about the new cost of energy. The prices are what they are. We will pay, and we will learn to live with them.
Oil will not likely go back to $3.50 a barrel, nor $10, and probably not back to $35. However, all markets settle down in price at some point. Alternate supplies will come into play and higher prices will slow down the demand. It happens in every commodity and it will happen with oil – again. We are paying the three dollars a gallon and we are buying more of it. The gorilla has roared but he is not roaming our streets.
L. Dean McGowan is Sr. V.P. Investments; UBS Financial Services, 5080 Spectrum Dr. Ste 1000W, Addison Texas 75001. From U S & Canada 1-800-288-1515; From Mexico 1-800-010-1323. McGowan will be in the Guadalajara and Lake Chapala areas July 13-20.
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