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Marketplace Morning Report

Oil price ripple effects

Adriene Hill Aug 10, 2011
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Kai Ryssdal: Oil prices rose slightly today. Still though, at $81 a barrel, crude’s down near six-month lows after a wild couple of days. Which brings us, once again, to the word of the day: Volatility.

Marketplace’s Adriene Hill reports that just like in stocks, ups and downs in the energy markets are no good either.


Adriene Hill: It’s enough to make you dizzy if you watch too closely.

Michael Levi is an energy expert at the Council on Foreign relations.

Michael Levi: Volatility is a fact of the markets. Big price swings are a fact of the markets. We’ve gotten used to relatively stable oil markets — that’s been a treat.

But, Levi says those “treats” are behind us.

Levi: It turns out that the natural state of oil markets is for prices to go way up and come way down.

Levi says the volatility in the oil markets freaks out consumers, who don’t know if they should buy a Prius or an SUV and so don’t buy anything. And it makes oil companies queasy.

Analyst Phil Weiss from Argus Research says many new drilling projects are expensive and require high-priced oil to be profitable.

Phil Weiss: The one’s that come to mind to me would be the oil sands and the deepwater projects.

Low-priced oil is also bad for renewable substitutes, like biofuels. Similarly, dips in the price of natural gas make solar and wind projects less attractive to investors.

But Ethan Zindler, at Bloomberg New Energy Finance, says the swings in the market could end up helping renewables in the long run.

Ethan Zindler: Volatility has a cost.

Firms pay that cost when they insure against market volatility.

Zindler: Will this trigger people to reconsider the wisdom of a situation in which our energy security is based on a fickle commodity like oil or natural gas?

But, he admits, it’s an easier argument to make when prices are on the high side of the bounce.

I’m Adriene Hill for Marketplace.

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