Analyst: Falling Oil Prices May Be Start Of Decline

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

You know the story about climbing oil prices. We watched the price of crude and gasoline go up and up and up. On Monday, it was $145 a barrel, then this week oil prices ticked down. To find out how long this might continue and what it means we turn to Phil Flynn. He's an energy analyst for Alaron Trading Corporation in Chicago.

Mr. Flynn, welcome to the program.

Mr. PHIL FLYNN (Energy Analyst, Alaron Trading Corporation): Thank you for having me.

NORRIS: Now, what were the reasons behind the decline this week?

Mr. FLYNN: There were so many reasons, but probably first and foremost was the stock market in the U.S. started to rally. You know, we've been buying oil for a lot of reasons. You know, we're concerned about Iran, we were concerned about hurricanes. But mainly, one of the reasons we've been buying that people don't realize is that we were worried about the state of the U.S. economy, the U.S. mortgage system, the U.S. banking system. There were a lot of worries.

People bought oil as a safe haven. Now, it appears that after the Federal Reserve came out and said that they were going to back Fannie and Freddie, some of those worst fears went away, people started to creep back into the stock market and back out of oil again.

NORRIS: So, is this an aberration or have we rounded a corner?

Mr. FLYNN: Well, I hope it's - that we've turned the corner. I think all the pieces are in place for a major top in oil. Of course, you know, saying that is going out on a limb because there's so many things that could still go wrong, because there are valid reasons why the market got as high as it did.

You know, we were worried about a war breaking out in Iran, but now we've sent an envoy over there, they're talking, those fears have gone away. And obviously, we have been worried about the state of the U.S. dollar, the U.S. economy. And if we don't get any more bad news, we're going to see dividends at the gas pump because it's going to start going down again. So there is some very good news from what happened this week. I think we can continue as long as no more shoes drop.

NORRIS: Mr. Flynn, you said you're going out on a limb with that assessment. But I'm betting there a lot of people behind the wheel of a car right now listening to this thinking, I hope he's right.

Mr. FLYNN: I know. I know they are, they're rooting for me. And I think I can be right. You know, people are saying, hey, enough is enough. We're not going to pay these high gasoline prices. If I have to walk, take my bike. I'm cutting back, you know? And we are seeing the effects of that in gasoline supplies. Our gasoline supplies are above normal for this time of year, and this is usually when we're scrambling to keep up with demand. So the bottom line is is that the American consumers have really turned the corner and they've cut back and it's showing up at the pump.

NORRIS: Now, I've been to the pump this week and I'm not sure that there's any real difference in the price at the pump quite yet. On average, gas fell less than one cent per gallon. So, are we talking about a steep decline or just a modest decline?

Mr. FLYNN: It could be a steep decline. If oil prices stay down, we could see a huge decline in the price of gasoline. And, you know, a lot of experts don't think that's going to happen. And it may not happen as fast as prices went up, because the truth of the matter is, you know, a lot of the oil refiners and the gasoline stations lost a lot of money as prices went up. You know, they didn't pass on the entire cost of the increase in the price of crude oil and that had a major reason why the prices might not come down.

But competitive pressures are out there, people are driving less, and the gas station owners are going to be fighting for your business. And if the price of crude continues to come down, well guess what, those pump prices are going to follow very quickly.

NORRIS: Phil Flynn is an energy analyst for Alaron Trading Corporation in Chicago. Mr. Flynn, thank you very much for being with us.

Mr. FLYNN: Thanks for having me.

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