An old industry rule-of-thumb states that when oil hits the $25- to $30-a-barrel range, the economy suffers, consumption declines and alternative energy sources begin to win favor. But today, consumers use energy much more efficiently than they did two decades ago, and the price cap has been driven upward as a result. That is according to Len H. Paton, managing director of Chase Securities Inc. Paton spoke recently at an offshore industry outlook conference in Houston. To illustrate this improved efficiency, Paton says that the daily rate of oil consumption was 16.7 million barrels in 1975. But if today's energy efficiencies were in place then, that number would have been 9 million barrels. "The new economy is far less sensitive to oil price shocks," Paton says. "The old fear of $25 to $30 oil bringing great pain is no longer a correct view." Paton didn't hazard a guess as to what oil price would inflict great pain on this new economy. While $50 to $60 oil would crush some industries such as transportation, no one knows for sure how it would affect the economy as a whole. "It's difficult to say what would happen," he says. Based on the outcome of the recent OPEC meeting, prices should remain in a $22 to $27 window, and that should help put an end to the industry's most dire problem-extreme boom-bust cycles, Paton says. "We've got to eliminate the gut-wrenching cyclicality that has plagued this industry," he says. One of the bigger victims of the industry's cycles-debt capital-will be quite expensive for the next year or two, he adds. There are fewer commercial banks that are willing to supply it because of the volatility of prices. -Jodi Wetuski
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