FOR NERVOUS NELLIES WORRIED ABOUT how to invest in energy if the latest oil price bubble bursts, the past may be prologue.

In 2001, a recession helped crude prices drop 26%. And while the economy today is still growing at about 3% a year, the sharply higher costs of running a car, heating a home and delivering goods could crimp consumer spending.

That in turn could curb oil demand and push prices below $50 per barrel in the coming year, from nearly $70 now.

Meanwhile, high oil prices are encouraging investment in fuel-efficient hybrid automobile engines and liquefied natural gas technology that ultimately may reduce reliance on crude.

"We believe the average price of oil will be $50 and it will spend 70% of the time between $40 and $70 -- at least in the next five years," says Waqar Syed, an oil field services and drilling analyst at energy research firm Petrie Parkman.

When prices have fallen in the recent past, shares of exploration companies have suffered more than those of refiners and large, integrated firms that operate in both those businesses.

This week, oil prices were rising again as Hurricane Rita threatened to damage oil production and refining facilities in Texas and the Gulf of Mexico.

To help curb prices, the Organization of Petroleum Exporting Countries said Tuesday it could produce two million barrels a day of remaining spare capacity, although some industry observers questioned OPEC's ability to do so.

Longer term, higher oil prices should generate more production, and energy prices will find a floor near $40 per barrel, says Zack Schroeder, an energy analyst at BB&T Asset Management.

High energy prices are having less impact on the economy than they did in the 1970s, when energy comprised roughly 8% of U.S. consumer spending, versus 2% to 3% now, says Bernard Picchi, senior energy analyst at Foresight Research Solutions (see Weekday Trader, "Letting the Gas Out of Oil Price Fears," June 1, 2004).

But extremely high energy prices or major supply interruptions still could trigger a recession, and crude prices would tumble, Picchi says. He thinks they could fall to $50 a barrel for six months or a year.

Oil prices hit roughly $26 per barrel in December 1996 before dropping nearly 60% through November 1998.

In November 2000, prices peaked at $34 per barrel before falling 42% through January 2002, according to Thomson Financial/Baseline.

In each case, increased OPEC production was a big factor behind the price drop. In 2000-2002, a U.S. recession weakened global demand.

Historically, as oil prices fell, investors flocked to integrated oil companies for their dividends, strong refining margins and breadth of global exploration activities.

Shares of major international integrated oil companies rose roughly 20% in 1997 and fell less than other energy sectors did in 1998. They held up well in 2001, too, especially those based in Canada.

During each of the two big recent price declines, shares of refiners produced double-digit returns, while exploration companies consistently showed double-digit declines, according to John S. Herold, an independent energy research firm (see table, "When Oil Prices Fall").

"If you think prices are going to fall, we think margins are moving to natural gas and refining," says David Talbot, an energy investment strategist at Herold.

The integrated oil companies are among the biggest refiners and natural gas producers worldwide.

"Where would I want to hide? BP, Royal Dutch Shell, Exxon Mobil," Talbot says.

In the current cycle, producers are finding it harder and more costly to replace depleting supplies. That's why some think demand and prices for services companies -- and their stock prices -- should hold up.

"If oil prices decline, oil stocks will decline, too, but you will still have tremendous demand for oil services as long as oil is above $40 a barrel," says Don Hodges, a Dallas-based co-manager of the Hodges Fund.

He says he bought shares of mid-cap global offshore drilling services company Ensco International this week and recently added Schlumberger, a large global oil and gas services firm, to his portfolio.

"The services sector has to keep working even if the oil price comes down, because worldwide demand and supply are so close," says Sarah Hunt, an analyst at Capital Management Associates, a New York money management firm.

Of course, peak oil theorists and some Wall Street firms like Goldman Sachs expect oil prices to top $100 a barrel. And heavy demand from rapidly industrializing countries like China and India could keep prices high.

So, even if oil prices fall, they are unlikely "to crater as they have in the past," says David Kelly, chief economist at Putnam Investments.

That could mean a boon for all energy sectors, bucking historic trends.

But if history is any guide, at some point energy investors may shift to integrated oil companies, refiners and some services companies to brace themselves against the long-term storm -- an economic slowdown leading to lower oil prices.

Full Disclosure: