Energy
Just how high will oil prices climb?
Not much, on average. Plan on prices ranging from $50 to $60 a barrel through June, fueled by unexpectedly strong economic growth in the U.S. and Asia and by Mideast politics.

But the threat of sudden spikes is up, especially as spring draws nearer. Brisk demand for fuel is leaving oil producers with a thinner supply cushion than expected.
That will sustain the oil risk premium, which adds at least $15 a barrel to what supply and demand would dictate prices should be. Bush’s tough talk on Syria and Iran is only adding to nagging concerns that Middle East oil facilities remain vulnerable to terrorist attacks.
By fall, prices should drop to about $45 as economic growth in the U.S. and abroad eases and gasoline demand takes its seasonal dip.

Meanwhile, U.S. motorists will pay through the nose as gasoline reaches a nominal record of an average of $2.30 a gallon by Memorial Day and diesel hits $2.40. They’ll both start a gradual decline from there. Gasoline will bottom out next winter at around $1.80/gal ... diesel, at $2.
Economic growth, here and elsewhere, is in little danger, though. Economic trends are largely leading oil prices, not the other way around. Other commodities ... metals, grains ... are in similar demand updrafts.
In fact, a touch of oil-led cooling would be welcome in the U.S., where the Federal Reserve is antsy about too-rapid growth. Oil is priced in dollars, so the soft greenback is easing the pain for other nations.

Tight oil markets will last until at least 2010, moderating a bit when the economy slows down.
Until then, oil producers will add capacity. They’ll do so slowly, after long underinvesting.
Current prices will spur fuel efficiency gains, notably in autos, accounting for 60% of oil use.
Nuclear and alternative fuels will also grow.

But refinery capacity will remain a problem. And more reliance on imports of refined products will increase the risk of supply disruptions.

Congress will offer some help but not in a comprehensive way.
And not anytime soon. Lawmakers will OK funding for renewables, domestic exploration, improved infrastructure, etc. ... mostly next year or later. Best bet this year: Opening Alaskan wilderness to drillers.
There’s no chance that Bush will tap the strategic reserve.

The economy
U.S. automakers are bracing for another bumpy ride this year.
The Big Three’s market share will slip again ... to about 56% of the U.S. market, down two points from 2004. Much-ballyhooed new models aren’t wowing consumers. For example, sales of the Ford Five Hundred, the successor to the popular Taurus, are lurching along. The same is true for GM’s Pontiac G6 and Buick LaCrosse. They’re selling at one-third the rate of the Grand Ams, Regals, and Centuries that they are replacing. And higher-margin domestic SUVs are losing out to foreign competitors.
Detroit has no choice but to dangle more juicy incentives to lure customers, a practice that automakers had been hoping to curb.
That’ll dampen profits this year and extend first-half cutbacks in auto production throughout the year. GM will pare back the most.

Foreign brands in the U.S. are enjoying much smoother cruising. Nissan, Toyota, Honda, and others will see sales keep growing this year.
Asian manufacturers are building more plants in the U.S. ... in Tenn., Ohio, Ala., Miss., and S.C. ... and expanding existing ones. Look for Hyundai to roll out its first American-built cars by fall.

Dark clouds are gathering over department store suppliers.
They’ll be forced to make big changes if they’re to survive in the face of a surge of department store mergers and closings. Vendors will need to be quicker to meet rapidly shifting requests from retailers seeking more-exclusive lines of apparel and other goods. And many more suppliers will merge to bolster their bargaining clout.
Some are opening their own retail outlets, giving larger stores a run for their money with exclusive outlets in trendy shopping areas. One leading supplier that’s busily opening new stores is Ralph Lauren.

Investor interest in the second-home market will wane this year. Rising interest rates and slowing home price gains are deterring buying by people who previously viewed it as a way to turn a quick profit.
But second-home sales in many areas won’t drop off much.
Coming to the rescue? A large wave of 50-something baby boomers, buying residences to enjoy as vacation homes or to retire in.
Most-popular spots: Las Vegas, Phoenix, San Diego, Orlando, and Fort Lauderdale, Fla. Second-home prices will remain fairly steady in those cities. In cities where buying relies mainly on speculators ... L.A. and Sacramento, Calif., for example ... prices are likely to soften.

Mideast outlook
In twisting Syria’s arm to withdraw its troops from Lebanon ...
The U.S. and other nations may get more than they bargained for. Under pressure, Syria will probably pull out all of its troops by May, shortly before the scheduled elections for the Lebanese parliament.
Syria’s exit may reignite violence simmering under the surface among Shiite, Sunni, Christian, and Druze factions within Lebanon.
And there’s a risk that Syria itself will descend into chaos. Syria generally regards control of Lebanon as vital to its own survival. The forced pullout will weaken Syrian President Bashar Assad at home.

That could strengthen the insurgency in Iraq. The White House is trying to take advantage of Assad’s weakness to pressure Syria into halting its support for Iraq’s insurgents. But if Assad falls, insurgents in the Middle East will make Syria an even safer haven.

© 2005 The Kiplinger Washington Editors, Inc.