$65 oil is coming (maybe)

Auto companies became focused on creating smaller hybrid cars; individuals are discovering the joys of public transportation, car pools and bicycles; churches are lecturing on the need to turn out the lights in vacant rooms; and presidential candidates are debating the merits of inflating tires. And perhaps most importantly, going green appears to have emerged from fad to lifestyle as the cool dads now drive Mini Coopers instead of gas-guzzling Suburbans to their kids' soccer practices.

Big private-equity and venture-capital funds, and industrial titans such as General Electric (GE, news, msgs), are throwing billions of dollars into creating better batteries, advanced materials and vehicles that run on plug-in electric power and plentiful U.S. natural gas. Meanwhile, oil giants from Brazil to Beijing are exploring for new oil and finding it offshore a lot more easily than expected, with payoffs to come a lot sooner than most skeptics now believe possible.

All of this is coming at a time when a credit drought has seriously impaired economic growth and blunted employment levels in developed nations in Europe and the Americas, and threatens to spread to Australia and much of Asia. When people are commuting and consuming less, and when companies are making less, they collectively use less energy. The U.S. Energy Information Administration reported Tuesday that oil demand during the first half of 2008 fell by an average 800,000 barrels per day compared with the same period a year ago -- the biggest volume decline in 26 years.

Bad news and other views

Of course, we should probably be careful about what we wish for. While stock prices have risen smartly as energy prices have cracked in the past month, stocks are likely to fall steeply along with oil prices if a global recession is the major driver behind demand destruction. Just in case you're wondering, Kolton's historical and economic research and his gut instincts as a veteran trader lead him to think that the Dow Jones Industrial Average ($INDU) will sink to the 9,500 level next year -- retracing the 2003-07 bull market -- before the bear has had its fill.

Opposing point of view? Yeah, I've got that. David Anderson, an energy portfolio manager at Palo Alto Investors, who has been my go-to guy for years on the subject, thinks the idea of crude oil falling below $65 per barrel is ludicrous. And, frankly, he says he doesn't even care when it comes to his energy-industry positions.

"We never base our view on energy-industry stocks on the direction of oil prices," he says. "We are buying growth companies in a growth industry and always have at least a five-year horizon. The fundamentals of the business -- increasing demand and decreasing supply over the long term -- favor higher stock values over time."

Anderson says energy bears are just not facing reality. He points to U.S. Department of Energy research that forecasts global growth in demand rising to at least 110 million barrels of oil per day in a decade from the current level of 85 million. "To get to that level while supply from the best and biggest fields in the Middle East, North Sea and Gulf of Mexico is shrinking will be very tough," he says. "Oil prices are going up to ration supply, short of a total global economic meltdown."

If you want to invest along with Anderson instead of Kolton, here are the large and medium-sized companies he likes best on the recent pullback, with expectations that they will roar back starting in September: Petrohawk Energy (HK, news, msgs), Plains Exploration & Production (PXP, news, msgs), Chesapeake Energy (CHK, news, msgs), Apache (APA, news, msgs), Southwestern Energy (SWN, news, msgs), EOG Resources (EOG, news, msgs) and Range Resources (RRC, news, msgs).

Anderson is always good with the small caps, and among his favorites now are Canadian Superior Energy (SNG, news, msgs), Arena Resources (ARD, news, msgs) and Gastar Exploration (GST, news, msgs).

With any luck, Kolton and Anderson can both be right. These energy companies were going to be very profitable with $75 crude oil a year ago, so they must be minting money now. Short of an expectation for the lights to go out worldwide over the next year, consider buying at these levels, while the pessimism lasts.

Fine print

To learn more about Logical Information Machines, click here. To see a commercial Web site that leverages the LIM data, go here. To learn more about Palo Alto Investors, click here. To see Energy Information Administration forecasts, click here.

At the time of publication, Jon Markman did not own or control shares of any company mentioned in this column.

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