Oil Prices Continue Decline Toward $90
MICHELE NORRIS, host:
The price of oil is down sharply today. Light sweet crude which is often referred to as the benchmark fell to $91.40. Just two months ago, we were talking about the price of crude soaring to 147 dollars. This drop could bring down the price at the pump, but it also suggests the U.S. and the world economy may be headed for more serious economic downturn. And so we turn to someone who's accustomed to charting the rise and fall of oil. Daniel Yergin is chairman of Cambridge Energy Research Associates and he's back to the program with us. Welcome back.
Dr. DANIEL YERGIN (Chairman, Cambridge Energy Research Associates): Thank you.
NORRIS: So what's pushing oil prices down? Is this a temporary dip or something that perhaps is much more permanent?
Dr. YERGIN: It is two things. One is, of course, in the immediate - it's a short-term dire financial crisis, which means that people are fleeing from being in commodities to be in safer things like Treasury. But the main thing is a much, much gloomier outlook on the world economy. And that's the change that has taken us on average down a dollar a day in terms of a barrel of oil since July 11.
NORRIS: And the strength of the dollar also has something to do with this?
Dr. YERGIN: Yeah, the other thing is - Yes, as the dollar weakened over the last year, people turned to oil and other commodities, and money went into that. And now we've seen the dollar strengthen, not because people think the U.S. economy is in such good shape, but because they see a U.S. weakness now becoming a global weakness. And as the dollar has strengthened, people have also been leaving oil and other commodities. So those things are coming together. And the extent of the change in view is, you know, a year ago or six months ago, people were still thinking of a strong global economy and some were talking that oil demand might increase by as much as two million barrels a day. Our latest numbers now are that oil demand will increase by a paltry 600,000 barrels a day. So a weak global economy means weaker oil demand, and that's the fundamental reason that oil prices are coming down.
NORRIS: So crude down by about 25 percent. What can people expect to see at the gas station?
Dr. YERGIN: Well, it's not going to happen quickly at the gas pump, because it's really amazing right now because we've had a major disruption. Twenty-five percent of our domestic crude oil production, 20 percent of our refining capacity is currently out because of Hurricane Ike. And so there are those disruptions. And so there's actually physically missing supplies. So it won't happen as quickly as one would expect, but, you know, it should over a period of several weeks as this production and this capacity come back maybe bring gasoline prices down 30 or 40 cents.
NORRIS: Mr. Yergin, help us understand something. Normally, a drop in the price of crude would be good news. But in this case, not everyone is cheering. Why is this seen as a mixed blessing?
Dr. YERGIN: Yeah. A drop - if we just stand back and said drop in price of crude, what this is is a great stimulus package for the economy. It's like a tax cut that the Congress doesn't have to pass. But the reason that it's not being cheered to the same degree is looking at the reasons for it. And there's been this debate this last year. Is the rest of the world decoupled from the U.S. economy? That is they can continue to grow while the U.S. is weak. Now, you know, looking at Europe, looking at England, we're seeing not decoupled. And the word out of China over the last two months is that the Chinese economy is also slowing down. And so we've had five years of terrific economic growth, and it looks like that period, at least for now, is over.
NORRIS: Now some analysts, as you know, are predicting that prices could continue to fall. Some are saying it could fall as much as down to 65, 70 dollars per barrel in the next three to four years. Does that sound right to you? How low might prices go?
Dr. YERGIN: What a change from two months ago where people were saying 200, and other people were trumping it and saying 250 dollars a barrel. Things change quickly. We could see oil prices come down. There seems to be a kind of a floor around 75 or 80 dollars, at least for a longer term. Because when you reach that level, then some of the more expensive new production that's coming in doesn't come in. But you know we're in a very volatile situation right now.
NORRIS: Thank you very much.
Dr. YERGIN: Thank you.
NORRIS: That was Daniel Yergin. He's an energy analyst and chairman of the Cambridge Energy Research Associates.
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