In 2006, we <em>really</em> paid at the pump
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In 2006, we <em>really</em> paid at the pump
BOB MOON: Here’s a present we all got this past weekend: Lower energy prices. Temperatures in the Northeast averaged 10 to 15 degrees above normal in recent days and the National Weather Service says demand for heating oil should be about 23 percent below average this week. That news helped push oil prices about a dollar-a-barrel lower today.
Never mind lingering worries that Iran might yet disrupt oil flows in response to U.N. sanctions over its nuclear program. The year’s ending in a lot better shape than it began when it comes to oil prices.
Marketplace’s Stephen Beard joins us from London with a look back. Thanks for being with us, Stephen.
STEPHEN BEARD: Yeah it’s good to be here, Bob.
MOON: You know I’d almost forgotten just how much of a fear factor it was earlier in the year when it comes to oil prices.
BEARD: Yes, a lot of fears — fears about disruption in oil supplies. And they came at the market from many different directions. Nigeria, a very important source of sweet crude, a kind of easily refineable crude, there were worries about Iran and the nuclear stand-off, concerns about hurricane damage — and of course, the Israel/Lebanon conflict, big worries there that it might trigger another Arab oil boycott.
MOON: And how much of it was real fear, and how much of it was just plain speculation?
BEARD: Well, there was a lot of speculation. I mean this was the year in which a small tidal wave of speculative money came into the oil market. Hedge funds piled in as some of these anxieties took hold. Very difficult to qualify precisely to what extent, but there have been some suggestions that hedge fund activity put something like $10 a barrel onto the price.
MOON: What was it that suddenly caused this reversal of fortunes and caused the hedge funds and the other speculators to just bail out?
BEARD: It looks as if, really, what did it was the fact that the factors that had driven oil out in the first part of the year went into reverse and dragged it down again.
MOON: So there was a lot of suspicion in this country that particularly gasoline prices were heading down right before the election because somebody might have been manipulating the markets. But you’re saying that there were very real market forces at play here.
BEARD: Yes, absolutely. There’s always a lot of conspiracy theories flying around the oil market, so who knows, there may have been a certain amount of manipulation — but there’s no doubt also that there were some fundamental factors here. I mean, first of all, we had the Israel/ Lebanon conflict came to an end. Fears about Iran and the nuclear stand-off receded, also of course, the American economy slowing down – and since the U.S. is by far the biggest market for oil, that also took some of the pressure off the price of oil.
MOON: So if good news can bring oil prices down, if we continue to have good news, or are we gonna have even better news in 2007 about oil prices?
BEARD: Well, in the final months of 2006 it does look as if the oil price has been sort of stabilizing round about the $60 a barrel level — but not really falling very much below. I mean I think one thing that we can be clear about is the days of $10 or $20 a barrel oil are a thing of the past, because, a number of factors – the fact that now we have china and india, the fastest growing markets of oil, increasing their demand rapidly. And also the other thing that’s taking hold in the market is this perception that the multi-nationals big oil companies are finding it harder and harder to find new reserves and exploit them.
MOON: Sounds like the best we can hope for is to keep our fingers crossed for good news and hope that it just doesn’t go up too much.
BEARD: Absolutely.
MOON: Thank you Stephen.
BEARD: OK, Bob.
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