You could almost hear the collective sigh of relief on the part of the nation's consumers and suppliers after the latest government report showed that crude oil supplies climbed by 6.9 million barrels for the week ended June 15, and stood at 349.3 million barrels. The news sent the August futures contract for sweet crude down $1.04 to $68.50.

At the same time, gasoline supplies managed to climb by1.8 million barrels to 203.3 million barrels despite a drop in refinery activity, which fell to 87.6 percent of capacity, from 89.2 percent a week earlier. Meanwhile, the average retail price for a gallon of regular gasoline fell to $2.998, according to AAA.

Now before you go and give that gas guzzling SUV an affectionate pat on the hood, here is the rest of the story.

Oil imports to fuel China's booming economy rose by 11.5 percent in the first five months of the year. That may not mean much until you consider that China is the world's third largest oil importer.

OPEC has stated unequivocally that there is no need for the group to inject further oil supplies into the market, an implicit rebuke to a statement by the International Energy Agency (IEA) that noted an urgent need for additional crude supplies.

The IEA had warned of the prospect of a world oil supply deficit this year due to record demand, rising project delays and reluctance on the part of OPEC to ship more crude this summer.

"We need an awful lot more crude," IEA supply expert David Fyfe said. "To us, the balance looks particularly stark at the moment."

The often used response by our policymakers on the subject is that consumers will adapt to lower supplies and higher prices by becoming more energy efficient. At the same time, reduced economic growth means a reduced energy requirement. And, of course, there is always the panacea of alternative energy sources.

So where is all this leading? Simply put, despite small perturbations, the demand for crude oil and its derivatives will increase. Furthermore, the supply is limited and bringing that supply to market is becoming increasingly difficult and expensive. Therefore, higher prices at every point in the supply line are inevitable. So, if you would like a small piece of the pie, you might want to continue to look at energy companies as possible investment candidates.

In an earlier column I discussed Smith International. This week it is Schlumberger's turn. Schlumberger [Ticker: SLB], one of the world's largest oil field services companies, is composed of two business segments. The Oilfield Services division supplies a wide range of products and services that include formation evaluation through directional drilling, well cementing and stimulation, well completions and productivity to consulting. The WesternGeco division is the world's largest seismic company and provides advanced acquisition and data processing services.

The company recently reported first-quarter operating revenue of $5.46 billion, vs. $5.35 billion in the fourth quarter of 2006, and $4.24 billion in the year-ago quarter. Net income was $1.18 billion, a 4 percent increase sequentially and a 63 percent increase year-on-year. Earnings-per-share were 96 cents, vs. 92 cents in the previous quarter and 59 cents in the first quarter of 2006.

The intrinsic value of the shares using a discounted earnings approach with an earnings growth rate of 20 percent and a discount rate of 15 percent is $136 per share, while a free cash flow to the firm model yields an intrinsic value of $150. The shares recently traded at $85.

My earnings estimate for this fiscal year is $4.10 per share and $5 per share in 2008, with a 12- month target price on the shares of $102. Now you can go pat that gas guzzler on the hood.