Boone Pickens told a Forbes conference that the easy-to-drill oil has been found and that production is, therefore, peaking. Based on his analysis, oil is going back to $70 a barrel this year.
US GDP growth has already been revised down from 3.5% for the fourth quarter of 2006 to 2.2%. The personal consumption expenditures price index fell recently, and spending on new home building tumbled by 19.1 percent during the last quarter. That does not leave the US economy holding a strong hand of cards.
Oil at $70 almost certainly means $3.00 gas. High gas prices early last year were blamed for everything from slowing car sales to lighter shopping at big chains like Wal-Mart (WMT) and Home Depot (HD). And, if gas prices rise again, the resulting pressure on the overall economy is likely to be profound.
The markets can hope Mr. Pickens is wrong, but hoping will not make is so. If oil supplies dwindle either oil producers will relax restrictions for a time, or the economy is in for a rough ride in the second half of this year.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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