Crude Oil Prices Drop As Saudis Refuse To Cut Production
STEVE INSKEEP, HOST:
The price of oil is plunging. Earlier this week, we told you it hit $89 a barrel.
RACHEL MARTIN, HOST:
Today we can tell you it's down below $85 - the lowest price in years and down 25 percent in recent months.
INSKEEP: As we'll here this morning, there are many reasons, from the expanding supply of oil, to the fact that oil is always priced in dollars. We begin with a country that traditionally has influenced the price of oil.
MARTIN: Future movements in the price of oil may depend on what the kingdom of Saudi Arabia does. NPR's Jeff Brady reports.
JEFF BRADY, BYLINE: We're at a service station in Glenside, Pennsylvania - just outside Philadelphia. The price here is $3.26 a gallon for regular; that's just a little higher than the national average of $3.18 a gallon.
(SOUNDBITE OF GASOLINE PUMP)
BRADY: Martha Bernardino is filling up her car.
Does it mean something to you if the price is 10 cents lower or 20 cents lower?
MARTHA BERNARDINO: It sure does. You get more gas; it's better for the economy, sure.
BRADY: Better for the economy - what do you mean?
BERNARDINO: Well, you have more money to spend in other places, don't you? (Laughter).
BRADY: At the next pump over, David Best knows how he'll spend his gasoline savings.
DAVID BEST: I love reading, so it'll go to books - or bills, paying bills.
BRADY: All that money going into the economy and not gas tanks is like a free stimulus package for the U.S. according to economist Philip Verleger.
PHILIP VERLEGER: It is quite possible that Christmas shopping will be much better this year because consumers will be spending less for gasoline.
BRADY: Verleger says a big reason prices are declining now is Saudi Arabia. The kingdom has one-sixth of the world's proven oil reserves, but that share is declining. Countries like the U.S. and Canada are producing more oil than anyone expected just a few years back. Today Saudi Arabia is worried about competition.
VERLEGER: They've decided to fight for their market share.
BRADY: Verleger says the Saudis are refusing to cut production, allowing places to plummet and hoping to make rivals cry uncle. He believes Canadian oil sands producers are a particular target. The Saudi Arabia Embassy in Washington did not respond to NPR's request for an interview, but it's clear this move is controversial - both with less wealthy countries in OPEC and even within the kingdom.
Here in the U.S. there are costs, too. What you save at the pump could cost someone else their job. Amy Myers Jaffe is executive director of Energy and Sustainability at the University of California Davis. She says as prices decline, drillers will look for ways to protect profits by saving money.
MYERS JAFFE: What history has shown is that when oil prices come down, the costs of producing oil also come down through efficiencies that companies might get by, you know, doing the same project with fewer people or using better technology.
BRADY: And Myers Jaffe says lower oil prices could upset global politics.
JAFFE: There are a lot of countries that are highly dependent on oil revenues - Russia, Venezuela, Iran, Nigeria - and those countries are going to become more unstable. As if we needed anything else to push some of these oil-producing countries into being more unstable.
BRADY: Myers Jaffe says without this instability, she'd predict a long period of lower oil and gasoline prices, but geopolitics are just too messy right now to say that. Another factor is American driving habits. In the past, when gas prices went down, people drove more and bought bigger cars, but Myers Jaffe says that's changing. Millennials aren't buying cars and driving as much as their parents, and cars on the road today get much better gas mileage. All this means when it comes to the oil market - the world is moving into unfamiliar territory. Jeff Brady, NPR News. Transcript provided by NPR, Copyright NPR.