U.S. Consumers Reeling From Higher Debt Burden

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Sometimes appearances can be deceiving when it comes to how much debt is weighing down on overleveraged Americans.

One anecdotal sign of the burdens American are struggling with: the ubiquitous TV commercial for a debt-consolidation service in which a suburban, upper-middle class man initially brags about his country club membership, spacious house and luxury car.

“How did I do this?” the character asks. “I'm in debt up to my eyeballs. Somebody help me!”

The man represents millions suffering from cash-flow poverty who have trouble paying for basic living expenses without taking on more debt.

Consumer debt has been climbing faster than personal incomes and shows no signs of abating.

Personal bankruptcies hit an all-time high in 2005, according to Lundquist Consulting, Inc., a bankruptcy analysis firm based in Middlesex, New York. Although spurred by a new anti-debtor law going into effect late last year, more than 2 million Americans sought debt relief from Chapter 7 and Chapter 13 bankruptcy.

U.S. consumer debt has almost doubled to $2.16 trillion as of October from about $1.3 trillion in 1998, according to the Federal Reserve.

More Troubling
An even more troublesome figure is that consumer debt has consistently exceeded disposable personal income over the past half-decade at a 4.5 percent annualized rate, according to a Bloomberg analysis of Fed data.

Some $600 billion of home equity debt was borrowed in 2004, accounting for 40 percent of the growth in gross domestic product that year, up from $439 billion in 2003. While home equity that is converted into cash for spending boosts the economy, it erodes the largest source of savings for most Americans. At the same time, paltry gains in personal income haven't kept up with housing costs and consumer inflation for most middle-class Americans.

“The economic growth over the last 20 years didn't help two-thirds of Americans,” says Ellen Schloemer, research director for the Center for Responsible Lending, a consumer group based in Durham, North Carolina. “Many were forced to take on debt to cover basic expenses.”

Her organization's sampling of low- and middle-income Americans (representing 15 million households) in a study entitled “The Plastic Safety Net” found that seven out of 10 of those queried used their credit cards as a “safety net --- relying upon credit cards to pay for car repairs, basic living expenses, medical expenses or house repairs.”

A higher reliance on debt to cover living expenses, she says, is “creating a permanent underclass of debtors.”

Pressures on Debtors
For those suffering from cash-flow poverty, credit has been generally easy to obtain, although the cost for the most cash- strapped is increasingly expensive.

Because of new guidelines issued by U.S. banking regulators, credit-card companies are doubling and tripling their required minimum payment to up to 3 percent of the balance plus fees. Regulators want banks to require debtor payment of at least 1 percent of the principal balance.

Banks can also layer on additional fees for late payers. “Until 1996,” according to the Center study, “a late payment on a credit card account typically resulted in a fee of $10 to $15, but now such late fees more commonly range from $29 to $39 and ‘penalty’ or ‘default’ rates that currently average more than 25 percent.”

Even more pernicious are “payday” lenders that advance money based on future paychecks. These businesses charge interest rates of as much as 400 percent annualized for short- term loans.

Stress on Consumers
For those deepest in debt, it can take a long time to get in the clear.

On a $12,000 card balance, paying a minimum 1 percent on principal a month, it will take 30 years to wipe out the balance. During that time, $17,684 in interest is paid, according to http://www.bankrate.com, a consumer lending Web site.

While a 3 percent minimum payment would clear the card debt in about two years, if the higher payments aren't affordable for the most cash strapped, it could lead to a cycle of even more borrowing.

The American Bankers Association in a Jan. 10 statement cited “signs of financial stress” for consumers brought on by higher short-term interest rates and rising gas prices.

The Washington-based industry association found that while delinquencies on credit cards dropped slightly in the third quarter of last year, late payment rates rose on auto, boat, personal, home-improvement and recreational-vehicle loans.

Cash-Flow Poor
Cash-flow poverty imperils consumers by making it impossible to save for future expenses.

Those who are shackled by debt now will not have enough saved for retirement and will likely need government support. It is in the country's best interests to acknowledge that the consumer debt problem needs to be addressed.

If you or someone you know is handcuffed by debt, try trading debt for savings. When $100 in debt is paid off, buy a U.S. inflation-adjusted bond, or I-bond. This savings bond, paying a 6.73 percent rate through May 1, is a great deal. It's commission free, compounds interest for 30 years and pays a bonus rate based on the U.S. consumer price index.

The $100 I-bond has the picture of Martin Luther King on it. King once said “the quality, not longevity of one's life is what's most important.”

This insight also applies to managing credit. Getting out of debt is one of those quality-of-life issues that can't be ignored on a national -- or personal -- scale.

WASHINGTON - Like Eastern, TWA and Pan Am before it, Independence Air flew into the history books Thursday night.

Teary-eyed airline employees shared hugs behind the counter at Washington Dulles International Airport after turning in their ID badges and waiting for the final flights to touch down.

Cheryll Butler, an Independence Air ticket agent, said passengers have been bringing the workers bouquets of flowers and other tokens of affection in the four days since the bankrupt airline announced it was going out of business.
"It was very tense today," said Butler.

Thousands of phone messages and e-mails have come into the company's headquarters since the shutdown announcement was made Monday, said airline spokesman Rick DiLisi.

"Almost all of them say the same thing, which is, 'we're really sorry that you're leaving and we enjoyed flying with you.' We feel the same way," said DiLisi, one of about 2,600 Independence Air workers facing unemployment.

The airline's last takeoff was shortly after 7:30 p.m. from White Plains, N.Y. The last arrival at Washington Dulles International Airport, from Tampa, Fla., touched down just after 9 p.m.

That left the carrier's fleet of 42 planes — 12 132-seat Airbus A-319 jetliners and 30 smaller 50-seat Bombardier CRJ jets — at Dulles. At its peak, the Independence Air operated about 87 aircraft.

Passengers on the final flights arriving at Dulles said onboard attendants tried to keep the mood upbeat.

Tom Florestano of Reston, Va., said flight attendants on his plane from Fort Myers, Fla., were playing games with passengers, such as having them guess the number of hours the pilot had logged in the past year. They gave away hats as prizes.

Independence Air began nearly 19 months ago as former executives from Atlantic Coast Airlines tried to turn a contract carrier for Delta and United into a discount airline that would eventually serve 36 markets from its Dulles hub. Parent company FLYi, Inc., filed for bankruptcy Nov. 7.

Planes operated at 50-75 percent of capacity on many routes this week, as the airline worked to accommodate ticket holders.

Passenger Shirley Blaes, a retired teacher, was headed back to Greenville-Spartanburg International Airport in South Carolina from Bradley International Airport in Windsor Locks, Conn. She said she flew Independence Air for the first time to visit her children for the holidays.

"I thought it was really very nice," she said. "Everything went right on time. The people were very friendly."

In between checking in passengers for a flight to Dulles on Thursday, four employees at Bradley posed for photographs in front of the Independence Air sign.

"It's a very sad day," said Deb Dusseault. "Everybody's so sad. That's a good thing, I guess. At least we were well-received."

"It's a shame because we offered a real good product," added coworker Pete Huckabee.

Analysts said Thursday that high fuel costs and low passenger loads in the months preceding the bankruptcy filing prompted the company to reduce its ambitious flight schedule. Some markets that once had a dozen or more flights each day were served by only a few flights in recent days.

"We're losing an airline that brought super low fares to America," said Tom Parsons, president of Dallas-based Bestfares.com. "Those super low fares put them into bankruptcy, too."

He predicted that markets not served by discount carriers jetBlue, Spirit, AirTran or Southwest will be among the first cities formerly served by Independence Air to see significant air fare increases.

"From Charleston, S.C., to Portland, Maine, those folks are going to wish for Independence Air to be back," said Parsons, who predicts some fares will double.

Over the next few weeks, about 180 employees will work to liquidate or secure the company's assets. At Dulles, that will involve cleaning out equipment at 35 gates and 18 ticket counters. Some of those jobs could last up to six months.

On Friday, some former employees will attend a job fair at the company's Dulles headquarters.

Big Apple prices are treading water after years of big gains. Will the rest of the nation follow?

NEW YORK (CNNMoney.com) - Manhattan real estate may have hit a wall -- albeit a very high one. The last half of 2005 saw home prices lag, according to two new reports from Manhattan brokers.

According to Prudential Douglas Elliman, the median sale price for co-ops and condos in Manhattan rose just 1.3 percent in the fourth quarter of 2005, to $760,000. The Corcoran Group found that median sales price declined during the quarter, with a 4 percent slide.

Because Manhattan sales had soared during the first half of the year, however, gains for the full year were still hefty at more than 20 percent. In addition, both brokers noted an uptick in the market at the end of the year.

A two-bedroom apartment now costs a median average of about $1.2 million in Manhattan, according to Corcoran.

The Manhattan slowdown comes on the heels of similar drops in the third quarter in some of the nation's most expensive real estate markets. Boston and other Bay State areas, many California markets, the Washington D.C. area, and suburban New York counties, all recorded lower or flattening prices, according to National City, a financial holding company.

Late year rebound
According to Pamela Liebman, Corcoran's CEO, the Manhattan market began to soften in the third quarter, owing in part to rising energy costs and media reports of the real estate bubble.

Locally, a lot of new inventory came on the market. Some 5,764 residences were in the listing inventory, a huge 52 percent increase over the past year.

Much of that improvement came courtesy of Wall Street, according to Jonathan Miller, a real-estate appraiser and consultant who compiled data for the Elliman report. He said bonuses in the financial industry set a record this year.

"Wall Street accounts for only about 6 percent of the jobs in New York but 25 percent of the economic activity," said Miller. "Every time there's an up-tick in bonuses, there's an up-tick in the real estate market."

Elliman's CEO, Dottie Herman, said she doesn't expect the Manhattan market to return to double-digit appreciation. That will "weed out the segment of the market that likes to flip, buy properties and sell them six months later for millions of dollars."

Herman does predict modest price increases of five or six percent during the coming year.
As for the increase in inventories, Miller said the increase is in line with the historical average.
Liebman expects the luxury market to continue to cook this year, but the non-luxury market is in more iffy. "There's still a lot of demand but there's not a total willingness to pay any price – except for trophy properties," she says.

Taking the broad view
"We can't extrapolate national trends from Manhattan markets," says Richard DeKaser, chief economist for National City Corp. But the turn in Gotham prices does mirror what has happened in many other pricey regions.

The average Boston sale price declined 2 percent in the third quarter of 2005, according to data from National City's Housing Valuation Analysis. San Francisco real estate fell about 1.2 percent and San Diego 1.5 percent. Washington D.C. rose, but only by about 1.3 percent and Los Angeles went up 1.2 percent during the quarter. Prices in northern New Jersey and in Nassau/Suffolk Counties in New York also fell.

DeKaser expects price increases nationwide to continue to slow. "Demand and market price appreciation peaked sometime this summer. What we're seeing now is an orderly retreat," he says.

The Peak Oil Crisis

New Years 2006

It's a good time to review -- looking backwards at what we learned in 2005 and forward at what might be in store for 2006.

During the past year, the average price of oil increased 33 percent almost matching the 34 percent increase of 2004. If one wants to think of peak oil just as steadily increasing prices, then we are clearly on our way. Since 2001, oil prices have nearly tripled.

The most memorable feature of 2005 from the peak oil perspective was the pair of powerful hurricanes that smashed into the Gulf oil facilities, momentarily sending oil to over $70 per barrel, and causing extensive damage to Gulf oil production and refining facilities that has still not been fully repaired.

Among the noteworthy features of the storms however was how little they seemed to have harmed the US economy. Obviously a lot of people were directly affected by the destruction of one major and numerous smaller cities and towns. However, by moving quickly, the government was able to import, and withdraw from the national reserves, enough crude and refined products to forestall shortages. For now, the US economy gives every appearance of continuing to grow and most observers are forecasting further growth in 2006. From the peak oil perspective, however, this "good news" means more demand for oil in the year ahead and still higher prices coming sooner rather than later.

America , however, is slowly coming to the realization that high energy prices are here to stay. In their annual end-of-year-review, the general consensus among Wall Street analysts was the energy situation has indeed tightened and $30-40 oil is unlikely to be seen again. Even governments are starting to perceive a problem is ahead. A peak oil caucus has been formed in the US House of Representatives and the administration has asked the National Petroleum Council to look into the future availability of "affordable" oil. In December, the Swedish government, in a bold step, publicly acknowledged that peak oil is indeed imminent and formed a commission to study how the country can eliminate the use of fossil fuels by 2020.

In retrospect, those following the peak oil situation are coming to appreciate that 2004 was the watershed year in the history of petroleum production. That was the year worldwide demand grew by 2.8 million barrels a day (3.5%), nearly double the usual annual growth of 1.8 percent. This unprecedented surge, largely occasioned by increased demand from China , nearly eliminated any spare capacity in worldwide oil production. From then on, supply and demand has been precariously balanced so that sudden increases in demand or supply interruptions are likely to result in significantly higher prices.

Understanding of the peak oil phenomenon and the forces governing what is about to about to happen also improved during the past year. The idea that "proven reserves," shale oil, tar sands, or arctic oil, has much, if anything, to do with the peaking of world oil production is now rejected by objective analysts.

The reason is simple. World oil production is now so massive —84 million barrels a day (30 billion barrels a year)— that new sources of oil simply are not being discovered and brought into production fast and cheaply enough to make any difference. The ability to maintain the size of the current flow, and the availability of the resources to do so, is all that counts.

The concept of "accessible" oil reserves is coming into the literature. Accessible reserves are those that can be brought into production soon enough so they can increase or help stem declines in current production, and cheap enough so users can afford them. Discussions about significantly increasing world production by spending trillions of dollars on new exploration and production efforts are sounding less and less realistic in a situation in which we may be only months away from peak production.

It is clear that if we have not already arrived at peak oil, then we have at least entered the run-up to the final peak. This year is certain to start with increasing demand for oil. Current world daily consumption of circa 84 million barrels a day (the exact number is always murky) is forecast to increase by about 1.7 million barrels during 2006. Nearly every detached analyst who has looked at the balance between production from new projects and the likely rate that production from existing fields will decline has concluded, at best, the worldwide oil production can grow for another four or five years.

When you throw in the idea that we live in a turbulent world —hurricanes, wars, political instability, etc.— the odds of worldwide oil production being able to meet any annual increase in worldwide demand of 1.8 percent much beyond the next 2-3 years are not very good.

As demand must drop to meet available supply, we will have rationing by price, unless government steps in to ration or cap prices— then we will have shortages. There is little doubt oil prices in coming years will be marked by unprecedented volatility. In the last six months we have seen the price of gasoline in the US spike to over $3 per gallon, retreat to around $2, and then start climbing again. It seems likely that swings of this magnitude and frequency will become the norm as the world undergoes the most important paradigm shift in the last 500 years.

Because of the many uncertainties involved, forecasts as to the future price of oil and gas are all over the map. Eternally optimistic Wall Street and government analysts see prices pretty much the same for the next year or so. Other serious observers are talking of oil being over $200 per barrel within a few years, either because Saudi Arabia has gone into depletion or serious disruptions to our supplies have occurred.

One thing we have leaned in the last year is that $60-65 per barrel oil is still deemed affordable by most American consumers. In retrospect, the September spike to $65-70 didn't really curb demand for gasoline and diesel fuel in America although, as Detroit has learned, it didn't do much for sales of large gas-guzzling cars. Many observers believe the demand for gasoline will hold firm until we hit $6-7 per gallon and then we might see a significant modification in driving habits. Beyond that, traffic jams and the economic activity that goes with them will be reduced dramatically.

When will we see $6-7 dollar gasoline? In the unlikely situation nothing untoward happens, than it could be around the end of the decade. However, given the likelihood something really bad will happen —an assassination, coup, a civil war, hurricane, major cold snap— then the real troubles could start at any time.

JAN. 8 9:02 P.M. ET Bolivia's president elect invited energy-hungry China on Sunday to help develop his country's vast gas reserves after his government carries out plans to nationalize them.

Evo Morales' visit to China comes amid a campaign by Beijing to develop ties with nations throughout Latin America as new sources of fuel, raw materials and new markets for its export dynamo.

Carlos Villegas, an economic adviser to Morales, said the industrialization of natural gas "is a fundamental topic" for Bolivia's incoming government.

"He invited the Chinese government, through its state companies, to participate," Villegas said.

Morales was due to meet Monday with President Hu Jintao and China's commerce minister.

The left-leaning Morales has alarmed Western governments with his plans to nationalize Bolivia's gas resources. Villegas said Bolivia wants private companies to remain as partners to develop them and will renegotiate existing contracts following Morales' Jan. 22 inauguration.

Villegas said Morales wants to develop industries to turn Bolivia's gas into more profitable products such as cleaner-burning diesel instead of exporting it as a low-priced raw material.

"We have made the proposal in Spain and France, and now in China," Villegas said.

Morales, a former Indian activist, said he hoped to build ties between Bolivia's socialist movement and China's ruling Communist Party.

China, as part of its push for links to Latin America, has signed deals to develop Venezuelan oil fields, and its investments in the region include a Brazilian steel mill and copper mines in Chile and Peru.

For their part, Brazil, Argentina and other nations look to China as a source of investment and markets for their own exports. Beijing has become a regular stop for Latin American leaders traveling with large business delegations.

Beijing's interest is almost purely commercial, said Zhu Hongbo, a professor at the Latin American Research Institute of Shanghai's Fudan University.

"People should not worry that China is seeking political and military interests there," Zhu said, adding that where Beijing develops political ties, it is to "guarantee the economic development."

China imports an estimated 40 percent of its oil, and analysts expect consumption to surge in coming years despite official efforts to increase use of alternative energy sources.

President Evo Morales announced Sunday during a visit to his home district of Chapare plans to dismantle the U.S.-supported military Joint Task Force charged with eradicating coca plantations.

Addressing troops stationed in the coca-growing region, Mr. Morales called the U.S. project "a failure" and said controls over coca production would be enforced by his "syndicates and social movements."

The president wasted no time tightening his grip over Bolivia's security services, which he has made a priority since taking the oath of office eight days ago.

He expelled 28 generals from the police, army, navy and air force after a government-appointed commission denounced high-command "complicity" in a U.S. covert operation to remove Bolivia's anti-aircraft defenses. Reports said only two of the generals removed were involved directly in the missile case.

"We have no choice but to go home, hurt by the political manipulation of which we have been victims," said Gen. Marco Antonio Vasquez, who was evicted from the presidential palace when he arrived with 15 other officers to protest.

Some observers think Mr. Morales is using China's provision of surface-to-air missiles to the new Bolivian government as an excuse to get rid of officers involved in counternarcotics and counterterrorist operations directed by the United States since the 1980s.

"Much of the army and police apparatus that the United States has set up in Bolivia is going to disappear," said a member of the ruling Movement to Socialism (MAS) defense transition team.

Washington gives Bolivia close to $100 million a year in military aid, which includes training, maintenance and advisers for elite units created to fight narco-trafficking and terrorism. U.S. Special Forces units at times have participated in direct-action missions in Bolivia, military officials said.

"The [Bolivian] force for the fight against narco-trafficking has become an extension of the American [Drug Enforcement Administration], with all the risk that this implies for our national security. All our organs and institutions must return to government control," said Juan Ramon Quintana, a defense adviser close to Mr. Morales.

Mr. Quintana insisted that the government will not accept economic aid from the United States that is conditioned on the fight against narco-trafficking, and will "eliminate all types of interference in the armed forces, including joint operations."

He said security assistance "without conditions" can be obtained elsewhere, and mentioned China as a source.

Mr. Morales announced last week that he would bring in Cuban and Venezuelan intelligence teams to clear government offices of hidden microphones and guard against "imperialist intervention."

A sweep was made of the presidential palace hours before he held a long afternoon session with Venezuelan President Hugo Chavez last Tuesday. Days earlier, Mr. Chavez had accused the United States of trying to instigate a military coup against the MAS government.

Bolivian security officials, speaking on the condition of anonymity, said Venezuelan intelligence officers have been operating closely with MAS for more than a year. They add that Cuban advisers manage the personal security team around Mr. Morales, which is composed largely of members of the MAS "syndicate police," originally created to protect coca growing interests.

An estimated 10,000 MAS militants are studying in Cuba on medical and other scholarships. A Bolivian intelligence officer, until recently assigned to the Joint Task Force, said many of the Bolivian students also are receiving military and security training to form a special militia or "parallel police" that the government is creating.

Bolivia's military is fearful the widening investigation into the missile case is turning into an "inquisition" aimed at removing politically unreliable officers.

"You shouldn't worry that we are conducting an investigation over the disarmament of our armed forces," Mr. Morales told military chiefs appointed last week. "I am the first to seek it, and together we will investigate this matter."

Gen. Marcelo Antezana, the dismissed army commander, told the government commission last week that the number of shoulder-fired, surface-to-air missiles turned over to the United States is far higher than the 28 reported when the scandal broke just before the December elections.

Gen. Antezana said 41 surface-to-air missiles were flown to the United States for deactivation because American security agencies didn't want them to "fall into the hands of MAS."

Correspondence between Bolivian defense officials and the U.S. Embassy reveal a confidential memo by Gen. Antezana dated from September in which he ordered the armed forces to "solicit the support of the U.S. Southern Command to conduct the work of demolition."

Bolivian and U.S. officials have said the missiles were inoperable, but a November report from the U.S. defense attache's office said some of the missiles would explode immediately after being fired and could be launched successfully but lacked reliable guidance. It said that "terrorists are not worried about the reliance of the manpads [but] in the wrong hands, they present a danger to commercial aviation."

Washington said the missiles were transferred at "the request of the Bolivian government," but the administration of President Eduardo Rodriguez provided no official authorization for their removal from the country.

One account given to investigators said the missiles were under the custody of Bolivia's Joint Counter-Terrorism Force when they were driven out of their depot by U.S. personnel in civilian clothes. The account, whose source has not been identified, said the U.S. personnel presented no written authorization when they removed the missiles to be loaded onto a C-130 cargo plane.

Ten disassembled missiles have been returned to Bolivia. MAS officials said Chinese officials offered to replace them at no cost during talks with Mr. Morales in his recent visit to Beijing.

[“Wow”, is all I can say. This report by FORTUNE is exactly the scenario that Colin Campbell of ASPO predicted to me when I first met him almost four years ago. This article, along with the President’s fantasy-laden State of the Union address, are two of the clearest admissions of Peak Oil (without actually saying the words) that we have seen thus far. The significance here is that now the awareness is actually reaching the markets. Whatever time is left to playact business as usual is running out rapidly. Admissions like these must start showing up quickly in the markets. They can no longer be avoided. The long overdue comeuppance of snake oil salesmen like Daniel Yergin and Michael Lynch is en route and we will enjoy it thoroughly. Every false report that oil would continue to be plentiful has been a monkey wrench thrown into the efforts of so many Peak Oilists to start prepping people for the inevitable. – MCR]

Weak production gains and an inability to refill reserves may put big oil in a pinch in coming years.

LONDON (FORTUNE) - Judging by the tens of billions (and yes that's billions with a B) the big oil companies are reporting in earnings for 2005, you'd think this is as good as it gets for companies like Chevron, Exxon, Shell and BP. Their shares are up, they've got a friend in the White House (even if he has been daring to talk about alternative energy), and they literally have more cash then they know what to do with. Heck, when was the last time it was cooler to be a member of Houston's Petroleum Club than be a tech type in Austin?

Look a few lines down from the blowout profits, though, and you'll spot something that's being quietly discussed in the boardroom but not maybe not at the Petroleum Club -- weak production gains and a stunning inability to replace the reserves the giants are pumping right now.

Although industry leader Exxon (Research) has long shown extraordinary discipline in finding more oil year after year, rivals like Shell and Chevron (Research) are lagging badly. Despite earning $14 billion last year, most of Chevron's production and reserve increases came from its acquisition of Unocal, not what oil insiders call 'the drill bit.' And while Royal Dutch Shell (Research) earned more than $25 billion, its daily production fell from 3.7 million barrels a day in 2004 to 3.5 million last year. Even worse, the Anglo-Dutch giant replaced only 70% to 80% of the oil it pumped out of the ground, despite spending billions on new projects.

"This is the big story for these companies," says veteran industry consultant and occasional gadfly Matthew Simmons. "They're so big, they're having a very hard time growing. The only thing they really know how to do well is buy back stock." Simmons, it should be noted, is convinced the world is entering a period of tight oil supplies that will drive prices much, much higher. That's debatable -- but he's on to something here. Because if the oil giants can't find new fields, going forward they'll essentially be liquidating the source of future profits. Smaller, independent oil firms have had much more success in growing production, which leads Simmons to wonder if maybe the giants wouldn't be better off splitting themselves up. "I think one of these days, one of the Big Oil companies is going to break itself up like AT&T and the Baby Bells."

Oil analyst Neil McMahon of Sanford Bernstein agrees the production numbers are a challenge, although he's a bit more sanguine about the future of Big Oil than Simmons. "Still, at the end of the day, it's not great," he admits, adding that production schedules of big projects like BP's (Research) Thunderhorse in the Gulf of Mexico and Chevron's Gorgon field off Australia have also been slipping.

For investors, though, there's one major upside here: independent oil firms may end being swallowed up by the big boys. "If you can't find oil, you're going to have to buy it," says McMahon.

Potential acquisition targets include oil sands plays like Canadian Natural Resources and Western Oil Sands, as well as skillful U.S. independents like Murphy Oil, Apache, Anadarko and Devon. Conoco's recent decision to buy gas-player Burlington drew skepticism -- as did Chevron's move to purchase Unocal last year. But with prices where they are, there's no shortage of cash. And there is a lack of easy-to-find crude. Don't be surprised, therefore, if the next time Big Oil finds some new assets, they're found not in deep water or under desert sands but on Wall Street.