Poor demand pushes down price of oil

Bob Moon Jul 10, 2009

Poor demand pushes down price of oil

Bob Moon Jul 10, 2009


KAI RYSSDAL: I promise this isn’t as hard a question as it sounds, but can you remember what the price of a barrel of oil was a year ago tomorrow? If you need a hint think “all time high.”

Crude’s record peak, adjusted for inflation and everything, was $147.27 a barrel last July 11. Today, you could get almost two and a half barrels for that price.

Oil closed at less than $60 today, down nearly 18 percent in just the past week and a half. And I’m guessing you’ve noticed gas prices have slipped too. Off a nickel a gallon from just a week ago. That sounds great.

But I’ll leave it to our senior business correspondent Bob Moon to remind us why cheaper oil isn’t necessarily a good thing.

Bob Moon: Behind every silver lining, there’s a gray cloud. And so it is with lower oil prices.

Tom Kloza is chief analyst for the Oil Price Information Service. He says not only is the global economic engine still idling, dashboard warning lights are flickering back on.

Tom Kloza: You need to look at those less sexy products like diesel, jet fuel and lubes. And right now they’re telling us that we’re as deep in the recession as we were in the fall, or even in March when the stock market was reaching ten-year lows.

Falling oil prices aren’t necessarily an indicator of new trouble ahead. At MF Global, energy analyst Mike Fitzpatrick thinks investors just got overly optimistic about a quick recovery.

Mike Fitzpatrick: I think the thing that people overlooked was that slowing contraction certainly was not the same thing as consistent economic growth. And there really has been no sign of that even yet.

In that case, why aren’t gas prices falling even faster? Fitzpatrick says refineries couldn’t process all the oil that’s available, even if they wanted to.

Fitzpatrick: No matter how much crude you have, if you only have a limited amount of refining space with which to take that crude oil and make it into those products, that’s certainly going to be a bottleneck for the marketplace.

Speculators have been putting even more oil in storage, hoping that a recovery might boost their profits. But analyst Tom Kloza says they could end up having no choice but to release that oil soon.

Kloza: The problem right now is, we’re running out of tanks.

And dumping even more oil on the market could push prices lower still.

Even without that, Kloza thinks the national average for gasoline could plunge to as low as $2.25 a gallon in the next couple of weeks.

I’m Bob Moon for Marketplace.

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