Magazines Paint Ominous Economic Picture

By Jennifer Hopfinger
June 2, 2006 07:45 AM

Doom and gloom pervade May's business magazine covers as they examine the surging energy costs and teetering home values that are threatening the financial well-being of many of their readers.

If you weren't worried about the price of gasoline enough already, Business Week gives you even more cause for concern in its May 15 issue. Its cover story, "Why You Should Worry About Big Oil" dissects the current state of the industry and explains why consumers could have to pay even more at the pump in the near future.

Major oil firms may be raking in record profits, but they're actually extremely vulnerable, the article argues. While it may be hard to worry about them, the article makes a case for why we should be downright anxious about their ability to continue providing enough energy to meet our needs.

"The majors may be making billions, but they are struggling to put them safely and soundly to work," the article says. "Overall production at the oil majors is struggling to keep up with demand, and the reserve replacement ratio, the measurement of how well they are replenishing their supplies, is slipping."

The magazine says some analysts think oil could reach $200 a barrel by 2010, or about $6 for a gallon of gas. It quotes sources who say the world is consuming oil at more than two times the rate of discovery of new supply. "Conservation and efficiency gains have already saved billions, but they have not been enough to offset sharply rising demand from China and India."

The main culprits behind the worsening situation are technical challenges and foreign governments - which are making the global oil patch increasingly off-limits to the oil majors.

Oil companies have to look harder and dig deeper, and that difficulty adds to expenses. Nations like Russia and Venezuela aren't offering good deals anymore and some countries aren't letting in the majors at all. In addition, national oil companies aren't as good at efficiently extracting oil and they aren't using profits to increase production, both of which affect pricing.

In addition to struggling with household budgets strained by energy costs, many Americans may also be in danger of losing equity in their homes.

While business magazines once marveled at the seemingly unstoppable real-estate market, they're now publishing dire predictions and cautionary advice for current and would-be homeowners.

Case in point: Fortune magazine's special issue, "Real Estate Survival Guide" ominously writes of "an ill wind blowing through the housing market" and "what the end of the boom means for home values, the economy, and you."

The magazine is not forecasting a nationwide housing collapse because prices in much of middle America remained rational during the boom. Even some overheated markets, such as Manhattan and Los Angeles are still going strong. But writer Shawn Tully says other coastal cities - such as Boston, Washington, Miami and San Diego - that have seen prices skyrocket could be in trouble.

"The problem is as basic as beams and trusses: The triple threat of soaring prices, higher mortgage rates and relentlessly rising property taxes has drastically increased the cost of ownership and put many homes out of reach for a huge number of potential buyers."

Fortunately, writer Ellen Florian Kratz offer tips for beating the market, whether you're buying, selling, or staying put.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism