Why Are Oil Prices On The Rise?

The national average for a gallon of gasoline is up to $3.07, and in some places it's a lot higher than that. The cost of heating oil is rising, too. And it's not the time of year you might expect a spike in oil prices. So what's going on? NPR's Robert Siegel talks with Phil Flynn, an analyst with PFG Best futures in Chicago.

Copyright © 2011 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

ROBERT SIEGEL, host:

As you have no doubt noticed at the gas pump, gasoline prices are back up. According to AAA's Daily Fuel Gauge Report, the national average price of a gallon of regular is now over $3. Why? Well, that's our question for Phil Flynn, senior market analyst for PFGBEST Research in Chicago.

Mr. Flynn, what's the answer? Why?

Mr. PHIL FLYNN (Senior Market Analyst, PFGBEST Research): Well, partly because the economy is getting better, believe it or not. We're seeing more demand, not only here in the United States, but throughout the globe, and that's driving up the price. But I wish that was all that there was to it. To be honest with you, what we're seeing in the price of gasoline shouldn't be happening.

SIEGEL: What are you talking about? What has happened that has aggravated this problem?

Mr. FLYNN: Well, I think if you look over the past few weeks, you have to go back to the France strikes. A few months ago, of course, because of the France austerity package, France shut down some major refineries. And when those refineries went down, Europe was scrambling to get supplies - supplies that would normally end up here in the United States.

And then after that, you had all these refinery problems. You had a refinery going down in Venezuela. You had one going down in St. Croix, one down in the East Coast. And before you knew it, we see these gasoline prices surging forward.

SIEGEL: So as we try to figure out if what we're seeing at the gas stations nowadays is the new normal, or back to what it would obviously have been absent the recession, what is it? Is it - are we at an unusually high period, or is it getting used to it, it's going still higher?

Mr. FLYNN: Well, I - I mean, there's projections out there that people are going to see $5 a gallon in the next two years. To be honest with you, I don't think that's going to happen. I think prices are ahead of themselves. In fact, if you look at the price of crude oil, which did hit a two-year high, the price of gasoline has even exceeded that. So gasoline prices should not be this high, and we should see these prices start to come back down.

But we have this situation where the U.S. dollar is very weak. We've seen a lot of stimulus to the U.S. economy. That generally puts more upward pressure on the price of oil and gasoline. Part of the reason is because the dollar becomes weaker, and the price of crude oil is priced in dollars. And in a global marketplace when we see the price of the dollar go down, oil prices go up.

SIEGEL: But does that mean that in other parts of the world, where people are filling up their cars with fuel that they pay for with euros or yen or whatever, that they are not experiencing as steep an increase as we are here using the dollar at the pump?

Mr. FLYNN: No, because the euro has been relatively strong. They're not feeling this latest increase. Though in Europe, they are feeling the increase in other ways because of their very cold winter.

I think the other thing you have to acknowledge here, what's happening, when we look at the gasoline market overall, you know, the United States isn't the only game in town anymore. It used to be whatever the U.S. consumers did - you know, whether they drove more or whether they drove less - really determined what gasoline prices did.

But now, of course, with the growing competition from China and from the emerging markets, they are really having a major impact on what we pay for a gallon of gasoline. In fact, if you go back to last year, for the first time since the 1960s, the United States was actually a net exporter of gasoline. Instead of the U.S. importing more and more from other countries, we're actually exporting to other countries. So that has become a major new development in the gasoline market that we haven't seen for decades.

SIEGEL: Phil Flynn, thanks for talking with us about this.

Mr. FLYNN: Thanks, Robert.

SIEGEL: Phil Flynn is senior market analyst for PFGBEST Research in Chicago.

Copyright © 2011 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.