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Oil is up and will continue to go up

Chris Farrell Jul 29, 2010

Oil is up and will continue to go up

Chris Farrell Jul 29, 2010


Bill Radke: The energy bill under debate in Congress now is less ambitious than what many Democrats once hoped for. One ideas Democrat abandoned was putting a tax on carbon production. Marketplace’s economics editor Chris Farrell says tax or no tax, the price of carbon is headed up — especially the carbon contained in a barrel of oil. Good morning, Chris.

Chris Farrell: Good morning, Bill.

Radke: Chris, oil is under $80 which, you know, is a lot less than what it was a couple of years ago, right?

Farrell: Oh, but Bill, think about it — what have we been talking about for the past several months? A slowing economy. Not just here in the U.S., but in China and in Europe. And yet oil has been up for the past three months, up to around $77, $78 a barrel level. And it was only back in 2003, you know, it reached $30 a barrel. So what that tells me is that hte price of oil is going to go a lot higher.

Radke: How much higher, you think?

Farrell: Well, I think it’s very easy to say $100 a barrel. Now that’s what the Saudis say is the equilibrium price if the whole global economy is growing. But remember Bill, it went up to $147 a barrel in 2008. So if the global economy is growing and production is peaked, you know the laws of supply and demand, you know what they tell you? A higher price. So $100 a barrel, we may look back that on say, hey, that was low.

Radke: Well, as you said, we hit $140-something a couple of years ago. How bad would $100 a barrel of oil be?

Farrell: It would be bad, because I think there is no doubt . . . now there are many factors that played into the Great Recession, the worst downturn since the 1930s, but it’s very clear economists have looked at it and one of those factors was the high price of oil. So our economy is very vulnerable to an increasing price of this precious commodity. And that’s why we need to have alternative energy, or else it’s the risk that it’s going to be energy once again, oil once again, will help put this economy back in the soup.

Radke: What are the odds alternative energy is going to come along and save us from an oil shock?

Farrell: Eventually, it will. My guess is the price of oil is going to go up, all of a sudden we’ll be scrambling with alternative energy, we’ll dip down again into a recession or some sort of sluggish economic grwoth, but we’ll finally climb out of it. I just wish that we would accelerate the process so we don’t have to go through this boom-and-bust cycle again.

Radke: The uncharacteristically pessimistic economics editor of Marketplace, Chris Farrell. Thank you, Chris.

Farrell: Thank you Bill. And Bill?

Radke: Ya?

Farrell: . . . I hope I’m wrong.

Radke: And, well, so do we.

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