Oil Prices Hit New High of $67; Trade Deficit Rises
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From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
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Another day, another record for oil prices. For a time this afternoon a barrel of oil was selling for more than $67. The closing price was up more than a dollar from yesterday's price, which also set a record, as did Monday's price, Tuesday's and Wednesday's. NPR's Scott Horsley reports.
SCOTT HORSLEY reporting:
You can take your pick of explanations for why the price of oil has jumped $10 a barrel in the last three weeks: refinery problems here in the US, security threats in Saudi Arabia, Iran's renewed nuclear ambitions or lingering worry about hurricanes in the Gulf of Mexico. Vice President Mike Fitzpatrick of the trading firm Fimat says the real answer is all of the above.
Mr. MIKE FITZPATRICK (Vice President, Fimat): It's a confluence of events leading up to these last couple of weeks and then one can almost describe it as a perfect storm for energy prices.
HORSLEY: Many speculative buyers are betting the price will go even higher. After all, why sell oil for 50 or even $60 a barrel when buyers snap up just as much at a price of nearly $70.
Mr. FITZPATRICK: It's going to take, you know, a clear signal that it's starting to weigh on economic activity. Once you start seeing economic numbers that show that the economy is clearly contracting specifically as a result of higher and higher energy prices, then, I think, you're going to see a lot of these speculative interests lightening their positions.
HORSLEY: So far, those signs of weakening demand have been hard to come by, but that could be changing. In California, which has some of the nation's most expensive gasoline, the Energy Commission reported this week that gas consumption actually dropped in the first four months of the year even as the population grew by more than half a million people. Nationwide, demand for gasoline is still growing, albeit more slowly than it was earlier in the year. Energy economist Stephen Brown of the Federal Reserve Bank in Dallas says even though gas prices are now 49 cents a gallon higher than this time last year, drivers are not able to cut back too much.
Mr. STEPHEN BROWN (Energy Economist, Federal Reserve Bank of Dallas): The way I use gasoline is determined by where I live, what kind of car I drive, and I can't change that real quickly.
HORSLEY: Brown adds that oil is still a relative bargain when adjusted for inflation, especially compared to the early 1980s when it took twice as much oil to generate a dollar of economic activity.
Mr. BROWN: Well, all of the businesses that are in manufacturing use much less energy than they used to use for any given product. And then we've also seen a change in the composition of our economy from kind of heavy smokestack industries to lighter, more service-oriented industries.
HORSLEY: There is still, of course, some limit to how high oil prices can go, but as Fimat's Fitzpatrick says, that limit is a lot higher than many people might have guessed.
Mr. FITZPATRICK: Almost every one of these barriers has become a self-fulfilling prophecy. I mean, it was going to be Armageddon at $50. The world was going to end at $60. Now they're saying $70. It wouldn't surprise me. I'm guessing we're going to have to get up there--only because I hear so many people talking about it--70 to $72 before it really falters precipitously.
HORSLEY: At this rate, oil could hit that next so-called barrier as early as next week. Scott Horsley, NPR News. Transcript provided by NPR, Copyright NPR.