Oil price drop not a steadying factor
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Kai Ryssdal: This almost seems like crazy talk given where oil and gas prices were this past summer. But I actually heard a pundit today talking about dollar-a-gallon gas. It’s been almost a decade since pump prices have been that low.
And with oil touching $40 a barrel today, it doesn’t seem out of reach. In a lot of ways it’d be a welcome turn of events.
For months we were telling you about businesses suffering from the high price of oil. Airlines, carmakers, truckers, you name it. How’re they doing now that crude’s down 70-percent? Marketplace’s Alisa Roth has more.
Alisa Roth: This is one of those stories where the answer should be really obvious. Cheap crude should be good for everybody, right? Well except maybe for companies like Exxon or Shell who’re actually selling the stuff. But even then, it’s not that simple. Take refineries. Those are the companies that buy the crude and turn it into stuff like gas or diesel. Bill Day works at Valero, a big independent refinery.
Bill Day: As the price of oil comes down, that means that we’re paying less for every barrel of oil that we buy.
So far, so good. Except that Valero’s profits depend on the so-called gasoline margin. That’s the difference between Valero’s costs for raw materials: crude, and how much it can charge for the finished product: gas.
Day: That margin is actually negative now. The price of oil has fallen a great deal, but the price of gasoline has fallen even farther.
Day says it’s not all bad news. They’re not losing money on diesel and jet fuel. But that might be why airline execs aren’t jumping up and down. Michael Boyd runs an airline consulting business. He says $150 a barrel oil was truly unsustainable for airlines. But that doesn’t mean the fuel-guzzling planes are flying high at today’s prices, either.
Michael Boyd: That’s still a challenge because no airplane flying today, no airliner, was designed for $50 a barrel oil. They didn’t even consider it.
Anyway, he says, the airlines are still recovering from the massive losses the expensive fuel did to them. As for Bill Day, he doesn’t want to sound like an ingrate. After all, refiners didn’t love $150 oil. But, he says, a little stability right now could really help.
In New York I’m Alisa Roth for Marketplace.
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