Ah, to be an ”energy expert” now that falling prices are here.
The same crowd of wrong-way Corrigans who were telling us not long ago that the price of petroleum would soar inexorably into the ionosphere are racing to tell us that the price won`t stop plummeting till bankrupt oilmen are giving the viscous stuff away on the streets of Amarillo.
Well, don`t hurt the poor darlings` feelings more by exposing them to cruel reality, but the suspicion in this corner is that they`re going to be wrong twice.
The big news, of course, is that oil prices have dropped nearly 50 percent in the last three months. That`s bad news for states, such as Texas and Oklahoma, and countries, such as Mexico and Nigeria, with oil-based economies, and for large money-center banks, such as Chase Manhattan, Bankers Trust and Bank of America, that lent them huge sums.
But it`s excellent news for the U.S. economy, and forecasters are racing to upgrade their 1986 predictions for economic growth and lower their projections for inflation and interest rates. Beneficiaries will include, first and foremost, the typical American consumer and such major industrial users of energy as airlines, utilities, truckers and steel manufacturers.
The sudden euphoria has given some perennial pessimists in our midst a handy excuse to switch–very belatedly–to optimism about the financial markets. Never mind that the stock market had doubled before the oil price collapsed; it does provide a marvelous new alibi for those who kept saying it couldn`t happen.
But just as the energy worrywarts miscalled things when the Organization of Petroleum Exporting Countries` powers were waning, so the same forecasters may be overdoing things on the downside. One legitimate authority, William H. Brown III, the respected No. 1 energy analyst for Kidder Peabody, tells me he expects a turnaround in energy prices before the end of 1986.
Brown is looking for oil prices to rebound from around $15 a barrel to
”the low to mid-20s range” within six months. He also doubts that consumers will see gasoline dip to the much-discussed $1 a gallon, primarily because of lessened competition (because of the spate of gas-station closures), the dealers` desire to protect their profit margins and ”human nature.”
Indeed, though negative psychology dominates the oil market, Brown is, perhaps surprisingly, bullish on much of the industry. He`s convinced that the dramatic drop in prices will correct itself soon.
His reasoning: As prices come down, refinery runs are reduced, inventories shrink and purchases from abroad are deferred. That diminishes supply. On the demand side, customers abstaining from buying in the hope that prices will get lower have to re-enter the market. The combination puts a floor under tumbling prices, and the supply-demand equation begins to turn in oil`s favor.
Such reasoning should not be overdrawn. Brown is not looking for a repetition of the 1970s hysteria that sent oil prices vaulting after two Arab- led supply disruptions. He isn`t looking for another dramatic upward movement in oil prices before the mid-1990s, and he doesn`t think that one will be of 1970s proportions.
On the investment side, Brown remains for the moment highly adverse to the drilling companies, which are more affected by the ”horrible” passing demand than other segments of the industry, but he likes a variety of other stocks, including Texaco Inc. and Shell Oil Co. (though he acknowledges that the former involves higher risk).
Over the longer haul, Brown expects some waning of conservation efforts, but he strongly doubts that Americans will go back to their energy-wasting ways. (And even if he`s wrong on a near-term rise in oil prices, he says, the price lure to consumers probably would be mitigated by a new government tax.) But his basic view is that the next major oil price fluctuation will be up a bit, and if he`s right it may be time for prudent investors to take another look at this unpopular group and begin accumulating a few straw hats in winter.
