Oil Price Outlook Is Clear as Mud

Betting on oil stocks right now, some say, is like betting that a 42-point underdog can stay in a football game.

For the stocks to climb and stay high, Iraq must put up a much tougher fight than expected in a war with the U.S., some analysts say. Put bluntly, there could be better bets.

"In the event of a war with Iraq, I think we're going in there favored by six touchdowns," said Phillip Flynn, senior market analyst at the Alaron Trading brokerage firm in Chicago. "But if it becomes a long, drawn-out situation, there's plenty of good money to be made."

To calculate the odds on oil stocks, investors must weigh a number of factors that influence America's overall oil equation. They should understand how much oil America uses, where it gets that oil and what its backup plan is if the rules suddenly change. They can also throw in a little history with their math, looking back at America's first war with Iraq as something of a scrimmage -- a lopsided blowout that, even so, probably taught America a lesson or two about how to fine-tune its game.

As a result, some energy-sector investors say that until the course of any conflict with Iraq becomes clear, it's best to steer clear of all but the bluest of the oil industry blue-chips. Others say it might be a good time to look at natural gas stocks. And still others suggest looking at lesser-name overseas oil bets. All of them caution, though, that investors should take a minute to understand the true nature of America's oil dependence and how 2003 might affect it.

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Every day, Americans burn through 20 million barrels of crude oil -- more than half of it imported.

If the U.S. economy improves, as many predict it soon will, the demand for oil will only rise. Nothing -- not even war with oil-rich Iraq -- is expected to send U.S. demand in the opposite direction. This is, after all, a country where gas-guzzling SUVs are the vehicles of choice and efficient hybrid cars are little more than rare political statements against America's growing oil habit.