Oil prices jumped to high levels last week--to more than $22 a barrel, $5 more than a year ago--persuading some that the spiraling energy costs of the 1970s were coming back.
"Your Key Word: Oil" headlined Grant's Interest Rate Observer, a financial newsletter that has long predicted a return of inflation.
Arguing for rising prices, some experts say, are skimpy U.S. inventories of heating oil and gasoline, growing world oil and natural gas consumption--and extravagant U.S. oil usage fed by Americans' love for gas-guzzling sport-utility vehicles.
Also there's continuing tension in the ever-unrestful Middle East, with a new government in Turkey snubbing the United States to make long-term deals with Iran, with threats of terror and instability in Saudi Arabia and with the Israeli peace process in doubt. U.S. foreign policy is confused and could bungle relations with leading countries by misjudging a new environment in the region.
So all seems to spell upward pressure on oil prices. But the true picture is different, due in large measure to changing technology in the oil business and new deposits of oil and gas either discovered or made accessible in many parts of the world.
The oil business has changed. Financial markets' worries over inventories stem from measuring the present with yesterday's yardstick. The perception of scarcity is misleading. "U.S. oil companies no longer hold large inventories. They've become more efficient and use a just-in-time system now," reports Joseph Tovey, a New York investment banker specializing in oil and gas.
Also, it's no surprise that in a world of rising living standards, consumption of petroleum should be going up almost 2% a year, to 23 billion barrels a year at present.
But since 1989, new discoveries and the ability of companies to wring new production from old deposits have kept pace with world demand, constantly replenishing global oil and gas reserves, according to British Petroleum's Statistical Review of World Energy.
Such abundance means oil prices are more likely to retreat than to rise, says Bear Stearns analyst Frederick Leuffer. He sees prices settling between $20 and $18 a barrel, with a tendency to dip lower.
Leuffer and other analysts are looking short-term at price-dampening effects of oil exports from Iraq, which begin in early September under a special arrangement allowing Saddam Hussein's country to sell oil to pay for medicine and food.
And longer-term, analysts look at new production rising in Latin America, Asia, and particularly in Azerbaijan, Turkmenistan, Kazakhstan and the Caspian Sea, the region of the former Soviet Union that was one of two birthplaces of world oil in the 19th century. (Pennsylvania was the other.)
Even after a century and a half of production, the Caspian region contains 4 billion barrels of oil--equal to almost half the quantity of the original North Sea or North Slope of Alaska fields. And that oil is now becoming more accessible thanks to new technology being employed by U.S. and other foreign companies.
Chevron is increasing the output of a major oil field in Kazakhstan. Unocal, BP, Amoco, Exxon and other companies have formed a consortium to develop oil and gas in Turkmenistan and in the Caspian Sea itself.
They are using such technological advances as three-dimensional seismic pictures of the Earth's subsurface, drills and drilling pipes that can change direction underground and new techniques for completing and protecting oil and gas wells.
"Technology has changed the success ratios in oil and gas," says investment analyst George Gaspar of Milwaukee's Robert W. Baird & Co. This has boosted earnings for oil companies and the oil service companies, such as Halliburton, Schlumberger, Baker Hughes and others, which is why they command premium prices on the stock market these days.
Now big developments are underway to build pipelines to take the Caspian region's oil and gas to expanding markets in Asia. Several proposed pipelines would go to Pakistan. Turkey wants pipelines through its territory, and Iran is ambitious to participate in these energy developments also.
The Central Asian region, as those names indicate, is predominantly Muslim in religion and culture, its peoples related to the Turks. Historically, it has been an area of contention between Iran and Turkey in the south and the Russians to the north.
And that explains why this new area of global economic development will be a challenge for the Clinton administration or the Dole administration, should one materialize in 1997.
Already Washington is tense because Turkey's new Islamist Prime Minister Necmettin Erbakan has signed a 23-year, $20-billion deal to buy natural gas from Iran.
The action could be seen as defying a new U.S. law that penalizes anybody investing in Iran, because of that country's support of terrorism. The U.S. government has not chosen to see Erbakan's deal in that light, but there is nervousness over staunch ally Turkey.
