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FREDERICA FREYBERG:
NOW THIS CONSUMER NEWS. FILLED UP YOUR GAS TANK LATELY? WELL IT IS TAKING A LOT LESS MONEY TO DO SO. PRICES HOVERING AT LESS THAN $2 PER GALLON RIGHT NOW. WHAT’S RESPONSIBLE FOR THE GOOD FORTUNE FOR DRIVERS IF NOT THE INDUSTRY? EARLIER THIS WEEK WE TALKED WITH PATRICK DEHAAN, SENIOR PETROLEUM ANALYST WITH GASBUDDY IN CHICAGO. THANKS VERY MUCH FOR JOINING US.
PATRICK DEHAAN:
MY PLEASURE.
FREDERICA FREYBERG:
YOU WROTE THIS WEEK THAT OVER THE THANKSGIVING TRAVEL PERIOD MOTORISTS WILL BE COLLECTIVELY SPENDING NEARLY $1. 7 BILLION LESS AT THE GAS PUMP THAN THE FIVE-YEAR AVERAGE. IF WE SPEND LESS ON GAS, DO WE SPEND MORE ELSEWHERE? HOW DO LOW GAS PRICES AFFECT THE ECONOMY OVERALL?
PATRICK DEHAAN:
IT’S FUNNELED INTO SEVERAL DIFFERENT AREAS. SOME MOTORISTS MAY BE SAVING IT UP, PAYING OFF BILLS AS WE APPROACH THE HOLIDAYS WHEREAS OTHERS MAY MAKE AN EXCUSE THAT GAS PRICES ARE SO LOW I’M GOING TO USE THE SAVINGS AND HIT THE ROAD THIS THANKSGIVING. IT DEPENDS ON WHO YOU TALK TO WHERE THEY’RE SPENDING THAT MONEY, BUT YEAH, CERTAINLY ANECDOTALLY A GOOD CHUNK OF THAT MAY BE GOING BACK INTO THE ECONOMY IN DIFFERENT FORMS.
FREDERICA FREYBERG:
WHERE DO WISCONSIN’S PRICES STAND COMPARATIVELY?
PATRICK DEHAAN:
GAS PRICES IN WISCONSIN GENERALLY A FEW CENTS UNDER THE NATIONAL AVERAGE. THAT’S WHAT WE’RE SEEING TODAY. ABOUT 4 CENTS UNDER THE NATIONAL AVERAGE. VERY SIMILAR TO LAST YEAR WHEN PRICES IN WISCONSIN WERE ABOUT 3 CENTS LOWER. THAT’S KIND OF WISCONSIN’S NORMAL ROLE, IF YOU WILL. SO LONG AS REGIONAL REFINERIES ARE DOING OKAY.
FREDERICA FREYBERG:
SO WHY ARE PRICES SO LOW COMPARED TO WHAT WE HAVE SEEN IN PRIOR YEARS?
PATRICK DEHAAN:
WELL, IT ALL STARTED TWO YEARS AGO ON A FATEFUL THANKSGIVING WEEKEND WHEN OPEC OR THE SAUDIS I SHOULD SAY INDICATED THEY WERE GOING TO OPEN THE SPIGOTS UP AND PRODUCE AS MUCH OIL AS POSSIBLE TO FEND OFF INCREASES IN U.S. OIL PRODUCTION. THAT REALLY STARTED A PRICE WAR AMONGST OIL PRODUCERS THAT BROUGHT THE PRICE OF OIL DOWN TO WHERE IT CURRENTLY IS AND WE’VE HAD THE LAST TWO YEARS OF LOW OIL PRICES. ALL ON ACCOUNT OF HIGHER SUPPLY THAN WHAT WE SEE FOR DEMAND.
FREDERICA FREYBERG:
THOSE LOW GAS PRICES ALA OPEC ARE GOOD FOR CONSUMERS BUT WHAT ABOUT OUR DOMESTIC PRODUCERS?
PATRICK DEHAAN:
WELL, CERTAINLY IT HAS CAUSED A LOT OF DOMESTIC OIL PRODUCTION TO GO OFF LINE. IN FACT, U.S. DOMESTIC OIL PRODUCTION HAS TAKEN A HIT OVER THE LAST TWO YEARS AS OIL PRICES HAVE FALTERED. IT IS A DIRECT TIE. THE LOWER THE OIL PRICES, THE MORE DAMAGE TO THE OIL INDUSTRY. WE’VE SEEN TENS OF THOUSANDS OF LAYOFFS IN THE INDUSTRY AS A RESULT OF LOW PRICES.
FREDERICA FREYBERG:
SO IT’S CERTAINLY A DOUBLE EDGED SWORD IN THAT WAY. WHAT’S THE SITUATION INTERNATIONALLY WITH OIL-PRODUCING COUNTRIES AND THEIR SUPPLY? SAME THING?
PATRICK DEHAAN:
WELL, CERTAINLY TO SOME DEGREE. IN FACT, IN THE NEXT TWO WEEKS OPEC WILL BE MEETING TO DISCUSS HOW TO SHORE UP THE PRICE OF OIL AFTER TWO YEARS OF DEPRESSED PRICES. THERE’S BEEN SOME INTERESTING DYNAMICS. OF COURSE IRAN IS A NEWCOMER AGAIN TO THE OIL PRODUCTION SIDE OF THINGS AS THE WEST HAS EASED SANCTIONS AGAINST THEM BECAUSE OF THEIR NUCLEAR DESIRE. THAT’S THE NEW FACTOR HERE IS IRAN IS NOW PUMPING OIL WHEREAS TWO YEARS AGO IT WAS NOT. THAT’S ADDING TO A GLOBAL GLUT. THERE ARE CERTAINLY SOME INTERESTING DYNAMICS. THE SAUDIS, OPEC’S NUMBER ONE OIL PRODUCER NOW REALLY HAVING TO FIGHT OFF IRAN WHO IS SEEKING TO INCREASE OIL PRODUCTION ITSELF.
FREDERICA FREYBERG:
WELL, SO WHY WOULDN’T OIL-PRODUCING COUNTRIES JUST STEP ON THE SUPPLY TO BOOST THE PRICE, HAVING NOW REALLY DONE INJURY TO U.S. PRODUCERS?
PATRICK DEHAAN:
WELL, PREVIOUSLY THAT WOULD BE VERY EASILY ACCOMPLISHED JUST BY OPEC CUTTING BACK. IT WOULD MEAN THAT THE U.S. WHO USED TO BE VERY RELIANT ON OPEC WOULDN’T HAVE ANY AVENUES TO GO DOWN. BUT NOW U.S. SHALE PRODUCERS WHICH PREVIOUSLY WERE ONLINE IN THE LAST TWO YEAR, THEY COULD COME BACK ONLINE, EFFECTIVELY SETTING A CEILING FOR HOW HIGH OIL PRICES GO. IF OIL PRICES WERE TO BREACH 50 OR 60 A BARREL THOSE SHALE PRODUCERS THAT HAD GONE OFFLINE MAY RETURN TO THE GAME AGAIN.
FREDERICA FREYBERG:
AND SO THIS COULD REALLY BE A KIND OF A ROLLER COASTER DEPENDING WHAT HAPPENS IN THIS GLOBAL MARKET. WHAT IS THE LONG-TERM PROSPECT FOR GAS PRICES? DOES ANYBODY HAVE A CRYSTAL BALL?
PATRICK DEHAAN:
I WISH WE DID. IT WOULD BE MUCH EASIER. I THINK RIGHT NOW THE NUMBER ONE TOPIC THAT WE’RE LOOKING AT IS WHAT OPEC WILL DO NOT ONLY THEIR ACTIONS, BUT THEIR COMMENTS. WILL OPEC COUNTRIES AGREE? WILL THE SAUDIS GO AFTER IRAN? WILL IRAN GO AFTER THE SAUDIS? IT’S VERY INTERESTING TO WATCH THE DYNAMIC AMONGST OPEC PRODUCERS. THAT REALLY SETS THE TONE FOR WHAT TO EXPECT IN THE FUTURE. IF ALL OPEC VOICES CAN BE ALIGNED ON A PRODUCTION CUT, THAT COULD WELL FOR OIL PRICES AND POORLY FOR AMERICAN MOTORISTS. BUT NO MATTER WHAT OPEC DECIDES, IF THEY DO CUT PRODUCTION, SHALE PRODUCERS WILL LIKELY EAGERLY BE WAITING ON THE SIDELINES FOR OIL PRICES TO RISE BEFORE THEY REOPEN OPERATIONS. SO THERE IS REALLY A FINITE AMOUNT OF PATHS FOR OIL. I DO NOT SEE OIL PRICES GOING OVER 60 OR 65 A BARREL ANY TIME IN THE NEXT YEAR OR SO.
FREDERICA FREYBERG:
ALL RIGHT. THANK YOU SO MUCH FOR YOUR EXPERTISE, PATRICK DEHAAN OUT OF CHICAGO.
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