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The SUNDAY TIMES: Merryn on Money: Oiling the wheels of the US: “…right now both Shell and BP look like very sound investments. They have a fabulous operating environment…” ( 13 Feb 05


February 13, 2005


I SPENT much of last week in Florida at a conference and discovered something very strange about the so-called sunshine state. Everyone’s always cold. Every building is so heavily “climate controlled” that you need a good few layers of cashmere to stave off pneumonia.


A little air conditioning to keep things tolerably cool when it is 110 degrees outside may seem reasonable, but so much that you have to put on a thermal vest to go into a restaurant just isn’t.


Worse, this kind of constant over-cooling is a phemonmenal waste of energy — as indeed is pretty much everything else in Florida. At the edge of the conference hall in Orlando there was a large bus on display. Not an ordinary bus, but a Marathon coach, a huge, 40-foot plus mobile home with “premium features” such as an Electri-Chef grill with a rotisserie, four plasma-screen televisions, an “underbelly entertainment system” and a mechanically adjustable bed.


I wasn’t convinced it was the kind of thing I would ever need. Still, someone else was completely convinced — they bought it there and then for $1.5m (£800,000).


Apparently Marathons are extremely popular among America’s retirees (hence the mechanical beds), who drive them round the country checking out the sights as they go.


You might wonder where they park these giant indulgences overnight on their trips back and forth from the Grand Canyon. I asked the salesman. The answer? In a Wal-Mart carpark. There are lots of them and they offer plenty of room and great security. Best of all, however, parking there allows Marathon drivers to stock up on their shopping before they move on the next morning.


So ownership allows you to combine three great American hobbies — driving oversized vehicles, indulging in pointless consumerism and, of course, wasting energy.


My point is that the American lifestyle — and increasingly the way of life here in Britain — requires huge and rising amounts of energy. There will never be fewer Marathons on the road: as the population ages there will be more.


There will be more cars, too (you can get a perfectly good one for $7,000 to $8,000, or a few hundred bucks a month) and as every new home, hotel and shop goes up there will be more air conditioning, too.


But what happens when everyone in China has a new car too, when every Indian pensioner fancies a Marathon of their own and when the residents of both countries don’t see why they shouldn’t shiver as they shop just like Americans? Today the US, with its population of 285m, uses up about 22m barrels of oil a day; Asia with its 3.6 billion people gets thorough only 20m.


That won’t last: demand may be rising fast in the West, but it is going up much, much faster in the East.


Many investment commentators are telling us that oil is last year’s story. They’re wrong: energy prices are the story of the decade, perhaps the century. Demand is rising, supply is tight and that means every investor should hold oil stocks. There are plenty of speculative ones around, but right now both Shell and BP look like very sound investments. They have a fabulous operating environment — since last August analysts’ consensus medium-term profit forecasts for BP have risen more than 40% — yet they trade on price/earnings ratios of 11 times and 14.2 times respectively. That’s too cheap.


Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always seek professional advice

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