Stocks Fall Sharply as Oil Prices Surge
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
It would be difficult to put together a worse collection of economic headlines. But here's what we have for you today. The price of oil shot up by more than $10 a barrel; that's a record increase for a single day. And it comes after yesterday's jump of more than $5. That and a very weak jobs report sent all of the major indexes in the stock market down sharply. The Dow Industrials fell nearly 400 points, over three percent. More on those unemployment numbers in just a moment.
But first, NPR's Scott Horsley is here to talk about what's going on in the oil market. Scott, it's just an enormous increase in the price of oil over the past two days. What's going on?
SCOTT HORSLEY: That's right, Robert. We've seen the oil price jump by more than $15 over the last couple of days. And that effectively erases all the relief we had seen in the high price of oil in the last couple of weeks, and then some. So oil is now back in record territory, above $138 a barrel, and what's happening really is that investors are betting the price will go even higher. We have a forecast today from the investment bank Morgan Stanley that the price of crude oil could hit $150 a barrel by the 4th of July. And it's like a headline I saw once in the Onion. You know, market gains 10 points on rumors that market will gain 10 points.
SIEGEL: Yeah, I mean it sounds like this is a self-fulfilling prophesy, that as investors hear that the price of oil is going to rise, they invest in the futures and the price rises.
HORSLEY: Sure enough it goes up. Exactly. We saw this earlier this year when Goldman Sachs predicted that we could see $200 a barrel oil within two years; that caused a rally in the price. Now, there are other factors out there. There were saber-rattling between Israel and Iran - a major oil producer today. There is labor strife in Nigeria, another major oil producer. And we have the fall in the dollar, which affects oil prices in a couple of ways.
For one thing, oil is priced in dollars, so as the value of dollar falls the producers demand more dollars for every barrel of oil they produce. It also makes oil more of a refuge. As people lose faith in the dollar, they invest in oil as a protection like they used to invest in gold. And that dries up the price. But none of those things was dramatically different today. We often have tension in the Middle East. We've had a falling dollar. So really the market was just looking for an excuse to go up and it did.
SIEGEL: Well, when we think of another market that just kept on going up and up and up and up, say the housing market, speculators bet on continuously rising prices and then ultimately they were brought down to earth. Any chance of that happening anytime soon with oil?
HORSLEY: Well, it has to happen at some point. I mean, we're already seeing pain points from the existing high prices. We're looking at an average price of gasoline nationwide now that's within a penny of $4 a gallon. We have seen diesel prices of more than $5 a gallon in California, and that is having an effect. I mean, airlines are making plans to park dozens of airplanes. We're seeing even drivers who are, you know, very well sheltered, but they're starting to ease up on the gas...
SIEGEL: You're saying demand could actually go down.
HORSLEY: Demand is going down, and at some point that has to cut into the price. But that could take a very long time. As one analyst I talked to - he said today, you could go broke waiting for this market to get logical again.
SIEGEL: Okay, Scott, thank you very much.
HORSLEY: My pleasure.
SIEGEL: That's NPR's Scott Horsley.
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