Accessibility links

Breaking News

Energy Prices Fall, But Market Remains Uncertain

The world market price of oil has fallen by over $30 a barrel in recent weeks. It has given consumers a break on gasoline prices and provided relief for the airline industry, farmers, manufacturers and transport companies. Even the Russian invasion of neighboring Georgia and a tropical storm in the Gulf of Mexico have not caused a significant reversal in the downward trend. But, as VOA's Greg Flakus reports from Houston, analysts say there is no way of predicting how long the lower prices will last.

Energy analysts here in Houston do not expect big price hikes in the immediate short term. But they say the days of abundant and cheap energy are probably gone. David Pursell of the energy investment firm Tudor, Pickering, Holt and Company, says prices in the months ahead are likely to fluctuate up and down, in a broad range.

"That is unfortunate for consumers, but it is also unfortunate for companies in the business. Certainty is a good thing, because if I know where prices are going to go and I am an oil and gas company, then I can have more confidence in my long-term investment decisions. Volatility can be somewhat paralyzing," he said.

Pursell says the Organization of Petroleum Exporting Countries, known as OPEC, can cut production to keep prices from falling below a determined level. But he adds, OPEC has little or no control over how high prices can go.

He says the drop-off in prices now is partly the result of falling consumer demand, in reaction to high energy prices, as well as the strengthening of the dollar.

Some commentators have suggested the recent oil price decline was caused by President Bush and other political leaders pushing for more drilling off US coasts. Such a move could increase the supply of oil in coming years.

Others say that threats by Congress to rein in so-called speculators who had driven up prices, helped reduce energy costs.

Analyst David Pursell has a different view of what politicians deride as speculation. He says it is a vital part of the market, in which experts try to lock in prices advantageous to their companies. He says even using the term speculator diminishes the role these investors play.

"It is not very descriptive. It is like calling a dog a non-cat. It may be accurate, but it is not very meaningful. These are professional investors. Speculator makes it sound like a bunch of guys going to a roulette wheel in Las Vegas and putting their money on oil," he said.

He says the investors who buy and sell futures had put money into oil, gas, gold, agricultural crops and other commodities because they wanted to own hard assets while the dollar was falling in value. Now, Pursell says, things have changed. "What has happened since then is the dollar is strengthening and you are reversing that money flow. What is interesting is that you do not hear a lot of complaints out of Washington about speculators driving the price down," he said.

David Pursell says a drop in oil prices to the $100-a-barrel level could result in consumers going back to their old habits, driving gas-guzzling cars and generally not worrying about energy costs. He says this is what happened in the early 1980's when energy prices fell dramatically and many conservation programs fell by the wayside. On the other hand, he says, continued volatility in the energy market could keep consumers focused on energy costs and encourage people to drive less and conserve more.