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Have oil prices topped off?

Jeremy Hobson May 28, 2008

Have oil prices topped off?

Jeremy Hobson May 28, 2008


Kai Ryssdal: On the topic of energy and the bottom line, oil jumped a bit today: just over $131 a barrel, but there are all the same some hopes for a break in those bubbling crude prices.

At one point this morning, the price started with the number 125, about 10 bucks under the record set last week.

Marketplace’s Jeremy Hobson’s on the oil story today. Jeremy, how are you?

Jeremy Hobson: Pretty good, Kai. How about you?

Ryssdal: I’m alright, thanks. So have we come now, at long, long last, to the tipping point in the price of oil?

Hobson: Probably not. Most of the people I spoke with today said the fundamentals are not changed: the supply and demand. Now, demand here in the U.S. may actually drop this year by about a percent — that would be the first drop since 1991 — but there are a lot of countries around the world that have subsidies for gas — places in the Middle East, in China. That means it’s still just about as cheap there as it was, so people are still buying gas like they used to. Also, it’s hard for us to measure demand and it’s even harder for us to measure supply. Nobody really knows what the world’s supply of oil is. I spoke earlier today with a guy named Paul Roberts, who wrote a book called “The End of Oil.”

Paul Roberts: The market’s so complex and it lacks transparency to such a degree that it’s really hard to say what exactly we’re in the middle of right now and that’s what’s so scary, because you can’t plan. You can’t plan ahead.

Now what Roberts says many speculators are betting is that supply is not rising as fast as demand and that’s why that price keeps going up.

Ryssdal: Alright, well here’s the big question, though: Is it just a hiccup and will the price continue to rise or is there some kind of downward trend that we can anticipate?

Hobson: Well, analysts are split on that. One guy I spoke with today said that price — $135 a barrel — that we saw last week was so ridiculously high that the market was just correcting, a long overdue correction, and that it probably will stay down. Others say not so fast. It’s supply and demand; those fundamentals are staying the same. Industry costs are rising and in addition to that, there’s a lot more state control of oil than there used to be. All those fundamentals keep that price going up.

Ryssdal: It’s a global market, Jeremy, for oil, right, so I have to ask about external factors other than supply and demand.
What about, you know, the dollar for instance?

Hobson: Well that definitely plays into it. I mean, we’ve all heard about speculation in the oil markets and if the value of a dollar is weakening, why would you want to buy it? You’d go for something that’s going up, like perhaps oil. The other part of it is oil is bought and sold in dollars and one analyst told me today if the dollar were even with the Euro right now, we wouldn’t be looking at a $130 barrel of oil, we’d be looking at $80 a barrel of oil, so that weakening dollar is having an effect on the price that we see here in the United States.

Ryssdal: We know there’s no direct correlation between the price of a barrel of oil and the price of a gallon of gas, except it always seems to us on the up side, but what about the recent hiccup or the recent downdraft that we’ve seen in the past couple of days. Are we going to see that at the pump anytime soon?

Hobson: Well, it’s funny Kai. One analyst told me today when the price of a barrel of oil goes up, you see that price reflected almost immediately sometimes in a gallon of gas. When it goes down, it takes a lot longer if it happens at all. The bottom line is it probably will not affect the price of gas. The gas prices are going to keep going up and as long as people keep driving and they’ve still got to drive to work, even for $3.94 a gallon, which is the national average, the price is probably still going to keep going up.

Ryssdal: Yeah, $3.94; I wish, right? I paid $4.05 on the way in this morning. What are you guys paying in Washington?

Hobson: It’s about $4 a gallon here in D.C.

Ryssdal: Marketplace’s Jeremy Hobson in Washington, D.C. Thank you Jeremy.

Hobson: Thanks Kai.

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