Oil Prices Drop Amid Crisis On Wall Street Oil is trading well below $100 a barrel. That is much lower than the $147 a barrel reached in mid-July. James Burkhard of Cambridge Energy Research Associates talks about what the drop in oil prices says about the economy.
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Oil Prices Drop Amid Crisis On Wall Street

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Oil Prices Drop Amid Crisis On Wall Street

Oil Prices Drop Amid Crisis On Wall Street

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RENEE MONTAGNE, host:

And amid the crisis on Wall Street, the price of oil has steadily dropped. Oil is now trading at about 95 dollars a barrel. That's much lower than the 147 dollars a barrel we saw in July. To help us figure out what's going on in the oil market, we're joined by James Burkhard. He's with the Cambridge Energy Research Associates. Good morning.

Mr. JAMES BURKHARD (Managing Director, Oil and Gas Group, Cambridge Energy Research Associates): Good morning.

MONTAGNE: Now why this huge drop? I mean, what relation does it have, if any, to the financial crisis?

Mr. BURKHARD: First of all, the drop has been driven by the weakness in global oil demand. The economic weakness in the U.S. has spread elsewhere, so global oil demand is simply a lot weaker now than it was six months ago. That's the primary driver. Then add on top of that the anxiety about the future of the global economy because of the financial chaos that's adding to the concern about the future of global oil demand.

MONTAGNE: You know, another thing, just last night the House passed a bill lifting a long-time ban on offshore drilling. And, you know, pretty much there's agreement that this new offshore drilling wouldn't by itself bring in enough oil to lower prices anytime soon. But might it have an effect to perhaps keep prices down?

Mr. BURKHARD: Years down the road it could have an impact, but it's not going to provide any immediate relief.

MONTAGNE: Right, so there's no psychological added effect, I mean, now that prices are going down with this sort of - there's drilling ahead?

Mr. BURKHARD: It's not a primary driver in terms of market psychology right now, and that's because we could be several years away, at best, in terms of new supplies. The supplies could be significant five, 10 years down the road, but not at the moment.

MONTAGNE: Now, how much are oil prices an indicator of how the economy is doing, or even how it will do?

Mr. BURKHARD: They're a good barometer of expectations about the future. Current demands plus fundamentals, of course, are very important, but expectations about the future really play a key role. And six months ago, expectations for the global economy were better than they were now. And as those expectations have shifted downward, that's been reflected in the price of oil.

MONTAGNE: Well, I mean, is there any way to measure how much of a boon falling oil prices could be to what we have here, which is a faltering economy?

Mr. BURKHARD: They provide some relief. But oil prices are still quite a bit higher than they were a year ago. And they may only seem low - if I could describe that 95 dollars as low - they're only low in the context from where they were in July, but they're still quite high historically.

MONAGNE: Do you think investors overshot on the way up? That is those speculators that everyone blamed before for high oil prices.

Mr. BURKHARD: Markets can overshoot and undershoot. And there is a case that perhaps the market did overshoot when we did reach 147 dollars.

MONTAGNE: Thank you very much for joining us.

Mr. BURKHARD: Thank you.

MONTAGNE: That's James Burkhard of Cambridge Energy Research Associates.

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