Why Oil Prices Are At Their Highest Level In More Than 3 Years
DAVID GREENE, HOST:
Oil prices are at their highest in more than three years. This is after President Trump pulled the United States out of the Iran nuclear deal. This is something many of you might be feeling at the gas pumps. And to talk about the implications of this and why it's happening, let's bring in David Wessel. He's director of the Hutchins Center at the Brookings Institution, contributing correspondent to The Wall Street Journal and, of course, a frequent guest on our program.
DAVID WESSEL: Good morning.
GREENE: So is this clearly linked to the president's decision on the nuclear deal?
WESSEL: Yes. I mean, oil prices were on the rise before the president announced his decision on Tuesday, and they've risen further since he made it official. Yesterday, oil prices were up about 3 percent. One bench mark hit $77 a barrel. That's 25 percent higher than they were in mid-February, and they've risen further this morning on global markets. And it shows up, as you say, at the pump - that AAA says gas prices are now 50 cents a gallon higher on average than they were a year ago.
GREENE: The people are really feeling this. So explain this for me. This would be an increase because of an expectation for a lack of oil coming out of Iran and then the ripple effects from that.
WESSEL: Exactly. Iran is an exporter of oil. And since the Iran nuclear deal that President Obama agreed to, they've been exporting more oil. So if the president's sanctions hold, Iran will supply a few hundred thousand fewer barrels of oil to the world markets. Now, that's a little bit in a market that consumes 95 million barrels of oil every day, but these days, the Saudis have been restraining supply to push up prices. Inventories have been low. Demand is up because the global economy is doing pretty well. So any little disruption can have a big increase - a big effect, rather, on prices.
Now, what happens to prices going forward really depends, as it always does - it depends on what the Europeans, the Chinese and the Russians do. Do they continue to buy oil, despite the U.S. sanctions? Do the Saudis, who are on our side in our fight with Iran - do they increase production of oil to offset what's lost from Iran? And then, it depends a lot what happens here at home. These days, compared to the oil crises in the past, the U.S. is a big factor in oil production. We're exporting oil now. We weren't doing that a decade ago.
GREENE: And I guess one question is - I mean, high gas prices is something that can create political pressure on - you know, on, say, a president and administration, which is something else to watch for. But beyond the prices at the pump, I mean, can high oil prices, especially if they're sustained, actually have an effect on the U.S. economy?
WESSEL: Oh, yeah, absolutely. I mean, you're right about gasoline prices. I always say they're the biggest prices in the economy. There's no other price in the economy that shows up on 3-foot-high signs on every gas station.
GREENE: Yeah, people feel it and know about it.
WESSEL: Right. So yes, it's bad for motorists. It will hurt U.S. growth a little bit. It'll mean more inflation, and that may push up interest rates. But it also helps oil producers. They're winners in this, and that's why the stock market was up yesterday - because energy stocks benefit from higher oil prices - the producers, the frackers and all that. So it doesn't hurt the U.S. economy as much as it once did.
GREENE: Oh, interesting. OK, so it can keep growth down a bit but actually helps the stock market, which are forces that can sort of offset one another, it sounds like. David Wessel...
GREENE: Thanks so much. It's always great to have you explaining stuff like this for us.
WESSEL: You're welcome.
GREENE: He is director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal.
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