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Oil Prices Lower On Economic Downturn
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Oil Prices Lower On Economic Downturn

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Oil Prices Lower On Economic Downturn

Oil Prices Lower On Economic Downturn
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In the last several months, the price of oil has sunk from $147 a barrel to about $50. Sarah Ladislaw, of the Center for Strategic and International Studies, talks with Steve Inskeep about why oil prices have fallen so much more dramatically than global demand, and what the projections are for future global demand.

STEVE INSKEEP, host:

It's Morning Edition from NPR News on this day after Thanksgiving. Good morning, I'm Steve Inskeep. Next, we're going to try to understand where oil prices are heading after this year's astonishing climb and crash.

Unidentified Male #1: Crude oil futures briefly moved above the $100 a barrel mark.

Unidentified Female: Oil prices hit another record high today above $147 a barrel.

Unidentified Male #2: They're hovering around $50 a barrel.

Unidentified Male #3: Gasoline prices have fallen below $2 a gallon for the first time in more than two and a half years.

INSKEEP: The people trying to understand what's happening here include Sarah Ladislow. She was with the U.S. Department of Energy and now works for a think tank, the Center for Strategic and International Studies. What is so different about the world economy now that the price of oil has gone from the 140s to the 50s in the space of a few months?

Ms. SARAH LADISLOW (Center for Strategic and International Studies): I think it's probably the global financial crisis and the economic downturn. I mean, I think over the last several years, you saw energy prices rise precipitously because demand was rising that fast. And people - a couple of years ago, people were talking about well, what happens if oil gets to $100 a barrel. Will people just stop driving their cars? Well, oil got to $100 a barrel, and people didn't stop driving their cars in places like China and these rapidly emerging developing countries - just kept, you know, demanding more oil. And so, supply was really having a hard time keeping pace.

INSKEEP: Even six months ago, which is a point at which the crisis was known and there was a slowdown in some parts of the world, but demand was still rising six months ago?

Ms. LADISLOW: Well, six months ago, it started falling off in the developed countries. So, like Europe and the United States, but I think you've seen is, demand has really fallen off. And the question going forward is, how much will it fall off? How long will this economic downturn last? And it looks like next year, you know, we'll actually be relatively well supplied. We think the economic downturn is still going to be there. We still don't know how bad it's going to be, and so you definitely see the price pressure drop a lot from that.

INSKEEP: Although the amount of the price drop seems stunning. Aren't we just talking about a few percentage-points change in the amount of demand - it was going up by a few percentage points; now, maybe it's going down by a few percentage points?

Ms. LADISLOW: Absolutely.

INSKEEP: Why would that cut the price by more than half?

Ms. LADISLOW: Well, there's - I mean, I think that there's another sort of factor working in here that a lot of people talk about, which is, why were oil prices as high as they were when they were that high, and why were you seeing such degrees of volatility? You know, you would have changes in oil prices like $14, $15 in the course of a day, which is really unheard of. And I think that the point there is that, you know, in tight markets, small shifts matter a lot. And so, everything that happens on the margin actually does have a pretty large effect.

INSKEEP: Let me make sure I understand what you're saying when you say tight markets and on the margin. If there's just not quite enough oil for the world, the scramble for that last barrel of oil is going to drive the price way up.

Ms. LADISLOW: Absolutely.

INSKEEP: And if suddenly, there's barely just enough or even a little bit more than what is necessary, all of a sudden, the price can drop dramatically.

Ms. LADISLOW: Absolutely.

INSKEEP: Now, help us see the future here. You've already suggested that demand may stay weak for at least another year. But if we look several years ahead, is this $100 oil phenomenon behind us for a long time to come?

Ms. LADISLOW: It's always good to caveat this with, if I was able to, you know, predict oil prices, I'd probably be doing something very different.

(Soundbite of laughter)

Ms. LADISLOW: But I think that the really important thing to remember is that over the long term, the world is moving from about 6 billion people to 9 billion people and...

INSKEEP: Six billion to 9 billion.

Ms. LADISLOW: Yes.

INSKEEP: Just to, OK. All right.

Ms. LADISLOW: And so, to the extent that growth in places like China, like the Middle East, like India - these rapidly emerging, developing countries - is going to persist, people largely believe that oil demand's going to come back on line and that higher prices are sort of the underlying trend here.

INSKEEP: Because, if you're going to have 50 percent more people in the world, even if the economy is bad, even if individual demand drops off, even if we conserve, we're going to be needing more energy a decade from now than we are now.

Ms. LADISLOW: Absolutely.

INSKEEP: Well, now, what are the implications of the fact that you say the energy market is going to be problematic as we go forward but right now, prices are down and $2 gas actually feels kind of comfortable.

Ms. LADISLOW: I think in sort of political terms, this is a real turning point for the United States. Our history suggests that when prices are low, we forget about all of the things that we were so very upset about when prices were high - things like energy security. But, you know, I think that people are more aware of these long-term trends, that energy prices will probably be high again, and that now is the time - even though there's less, you know, market incentive to do things like conserve more, become more efficient, promote alternative energy, things that would sort of change our path going forward. And I think you're seeing a lot of people, politicians and companies, especially, trying to remind the public and each other that we can't forgo difficult decisions even though the price has dropped.

INSKEEP: Sarah Ladislow of the Center for Strategic and International Studies. Thanks very much.

Ms. LADISLOW: Thank you.

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