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High Oil Prices Due to Economic Stimulus

Audio

Aired 8/19/09

Gas prices in San Diego County have remained flat over the past few days. We're joined on Morning Edition by Phil Flynn, Senior Market Analyst at PFG Best Research in Chicago, and a Fox Business News contributor.

Gas prices in San Diego County have remained flat over the past few days. We're joined on Morning Edition by Phil Flynn, Senior Market Analyst at PFG Best Research in Chicago, and a Fox Business News contributor.

Alan Ray: Phil, AAA says we look to be at another plateau for gas prices in California. What is stabilizing the market?

Phil Flynn: You know, I think it's the uncertainty of what's happening with the economic recovery, which is kind of a strange answer but it's the truth. I mean, I really think that, you know, normally we would see these gasoline prices already coming back down but there's been enough turbulence in the global oil markets that have been keeping prices propped up near this level. On one hand we get seasonal demand kind of driving down, or pressuring prices on the down side but at the same time, because of the weakness of the dollar pumping up crude, it's created a situation where prices are going steady. The bad news is they should be going lower.

Ray: Okay, should we expect this trend to continue?

Flynn: I hope not because it's very, very frustrating from where I stand because right now I would like to see these prices really start to come down. I think that we're seeing this market being influenced by outside factors that are keeping the prices propped up, and probably hurting the consumer in the economic recovery right now. I think one of the reasons retail sales were not as good as they could have been earlier last week is because, you know, people are still struggling at the gas tank. We do expect the prices should start coming down but, you know recently, it's been a very, very volatile market and the futures, so we do think they will come down but how quickly is the question.

Alison St John: So as we just heard, the first hurricane of the Atlantic season is now a Category 4. How might this season affect production and therefore oil prices?

Flynn: Well, so far we've dodged a big bullet. (Hurricane) Bill, thank goodness, is not going into the Gulf of Mexico, it's not going into the major oil producing regions. Obviously, we hope it does no damage to Bermuda but, really, we dodged a bullet with that storm. A Category 4 storm in the Gulf of Mexico could have had a devastating effect on the oil industry. And, you know, it wasn't just Bill. We had two other storms, Anna and Claudette, that didn't turn out to be a big thing. Up until this point we have been very lucky when it has come to this hurricane season. Hurricanes have been below what they have been in the previous years up to this point, but the appearance of these storms is a reminder that hurricane season isn't over. It's still a threat at any time and even the increased activity, even if the storms aren't going to get into the Gulf of Mexico, it's another reason why traders in the markets stays up because there is that concern that something could develop in the future.

Ray: We have seen some relatively strong housing numbers in the past few weeks. Any connection between gas and oil prices and real estate news?

Flynn: Believe it or not there is, because we saw oil prices actually rally on that news and I know it seems convoluted because we're not running our houses on gasoline, you don't have to drive it to the corner station to fill up your house. But the truth of the matter is that all of these markets are tied together, and they're tied together in the context of where we are at in this economic recovery. Whether it be oil prices, what you pay at the pump, what you pay at the grocery store - it's all tied together. What we've tried to do to heal this economy is stick in a lot of stimulus, and this stimulus obviously is creating higher prices for certain things, oil being one because of the weak dollar. When you look at the housing market and the market is getting a little bit better that's bullish for oil prices because as the economy gets better people are maybe going to go to work, use more energy, keep things going. But then on the other hand, if the economy gets too hot you may have to take some of the gas that's been feeding the economy away, and that could be bullish. So right now, in the short run, good news for the economy is actually bullish for oil prices, on the expectations of demand. That won't continue, but for the short term that's the way it is.

St John: Okay, so for people who are still on road trips, what do you predict for the gas pump in the next few weeks?

Flynn: I expect prices to continue to stay stable to lower, and I really hope - you know, when you get near the holiday, near Labor Day, you usually get a little bit of a bump in price because of demand. The question is are we going to get that bump from $3 a gallon in your area or from $2.90, $2.80. I'm hopeful that in the month of August that we can see prices see some downside pressure, maybe get those prices down to $2.80. We'll probably spike up right into that Labor Day holiday, so if you can fill up a little bit early and not drive a lot and save that gas, it's a good idea.

Ray: All right, Phil, thank you much.

Flynn: Thanks guys.

Ray: That's Phil Flynn, senior market analyst at PFG Best Research in Chicago and a Fox Business News contributor.

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