A Holiday Treat: Lower Prices At The Pump
SCOTT SIMON, HOST:
And if you're one of millions of motorists on the roads this holiday weekend, you may have noticed something unexpected and welcome. Gas prices are falling. This at the start of the summer driving season when gas prices usually spike. We turn now to Daniel Yergin. He's author of "The Quest: Energy, Security, and the Remaking of the Modern World," and chairman of IHS Cambridge Energy Research Associates. He joins us from his office in Washington, D.C.
Mr. Yergin, thanks so much for being with us.
DANIEL YERGIN: Thank you.
SIMON: How far have gas prices dropped?
YERGIN: Gas prices have dropped about 25 cents over the last six or seven weeks. Where we are in gasoline prices and oil prices today is where we were last November before the tension really started to build up over Iran's nuclear program. But I think that at $3.70 a gallon, people would not say gasoline is cheap.
SIMON: And is this across the country or are there pockets?
YERGIN: Well, in some parts of the country, gasoline prices are still over four dollars, on the West Coast. But this is generally unfolding across the whole country.
SIMON: So what brings about a drop in prices at a time when I think a lot of people a few months ago would have said you couldn't expect it?
YERGIN: Well, there are three things that have really brought down the price of oil from where it was just weeks ago. The first thing is we've seen this kind of security premium that entered the oil price right at the beginning of the year as tension and U.N. reports about Iran's nuclear program raised concerns about some kind of confrontation.
But the other thing that's happening is what's happening in the global economy. Europe looks like it may well be heading into recession. Economic news from China shows a Chinese economy somewhat weaker, which means lower oil demand. But I think the point to look towards is the end of June and the beginning of July to see if these very tough sanctions which want to squeeze Iranian oil out of the market go into effect and where the substitute oil comes from.
SIMON: So if they go into effect, we could still see an increase in...
YERGIN: Yeah, we could see an increase in price. But Scott, what is really striking is to see this surge of oil that has come from other sources into the market. Saudi Arabia, of course, is the number one source, but you see Iraqi production going up. And there's another country in which oil production is going up very noticeably and that happens to be the United States, which is having the biggest increase in oil production of any non-OPEC country.
SIMON: Mr. Yergin, explain to me what happens if millions of Americans say, you know, gas is cheaper than I thought it would be so I we're going to drive a little more. We're going to take an extra weekend trip. We're going to - instead of going 50 miles away, we're going to go 200 miles away to a place that we've always wanted to see.
YERGIN: Well, motorists clearly do respond to price and when the price goes down and they feel more comfortable, they take to the road and therefore, demand will go up. I don't think we would see a startling increase in demand, one that would tip the market in one direction or another. If we had seen oil prices and gasoline prices over four dollars a gallon, I think what you would have seen is less consumption.
And I think that when congressmen and congresswomen come back from their districts after the Memorial Day holiday, they're not going to come back saying their constituents aren't worrying about gasoline prices. So this is still going to be factor, not only in the economy, not only for the experience of motorists, but it's also going to be a political factor as we continue in the presidential season.
SIMON: Daniel Yergin is chairman of IHS Cambridge Energy Research Associates and, of course, author of "The Quest." Thanks so much for being with us.
YERGIN: Thank you.
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