The price of West Texas crude oil has climbed $10 in the last six months to its current level of $36.28, its highest level since the eve of the Iraq war. Meanwhile, the economy is expanding at a 4.1 percent annual rate, weathering the rise in oil and gas costs without the inflation and economic stagnation that occurred in much of the national economy after energy price spikes in the late 1970’s and early 1980’s. This NY Times article addresses the reasons for this reversal in the normal countercyclical effect that high energy prices have on the rest of the national economy, and the point at which even higher energy prices would likely slow the economy’s expansion.

Houston-based Continental Airlines — one of the Houston area’s largest employers — announced today that the airline’s stated financial goal for break-even results in 2004 is “at great risk” due to the high price of jet fuel and oil.

Houston based El Paso Corporation disclosed that it is reducing the value of its estimated proven reserve base of its oil and gas properties by 41%. Proven reserves represent what an oil and gas company can reasonably expect to produce based on economic conditions and technology. As a result, El Paso will record a one-time, non-cash charge against its fourth-quarter earnings of about $1 billion on a pretax basis, which, under federal securities rules, must be taken to reflect the decline in value of the proven reserve base on El Paso’s books.
El Paso’s move comes on the heels of Royal Dutch/Shell Group‘s announcement last month that it was reducing the value of its proven reserve base by 20 percent and El Paso’s warning to investors earlier this month that it expected to make a material negative revision in its proven reserve estimates.
El Paso continues to struggle under a heavy debt load. It has also been liquidating a number of assets over the past year to raise cash and reduce debt.
Update: The Houston Business Journal this afternoon reports that El Paso’s stock price was hammered today on the report of the reserve write down. The HBJ article includes analysis on El Paso from John Olson of the Sanders Morris Harris investment firm. Mr. Olson gained local fame when he was one of the only investment analysts who was bearish on the stock of Enron Corp. well before Enron melted down in late 2001.

Following up on this earlier post, the Houston Chronicle reports that Texas Republican congressman Joe Barton will replace retiring Louisiana Republican Billy Tauzin as chairman of the House Energy and Commerce Committee.
In other energy news, the Chronicle reports that, despite the current run-up in oil prices, many in the energy industry believe that the better long-term play is in natural gas.

The NY Times reports that OPEC made a surprise announcement earlier today that it was cutting its production quotas. The Houston Chronicle reports that Crude prices rose on the news. The Wall Street Journal‘s analysis of the action is here (subscription required).
By this action, OPEC is attempting to do its part to maintain oil prices at their highest level in two decades. My sense is that this move may benefit the OPEC members in the short term, but that long term prices will fall from increased exploration and production that will result.