Transcripts

Crude Oil Prices Continue to Rise

SUSIE GHARIB: Oil prices bounced back over $130 a barrel today after a big Wall Street firm set a $150 target price for crude. In New York trading, July crude futures traded as low as $127 but rebounded to close at $131.03, up $2.18. Experts say those sky-high prices are not yet fully reflected at the gas pump. But as Washington bureau chief Darren Gersh reports, there are signs consumers are already changing their driving habits.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a $14 trillion economy with 150 million cars on the road, changing consumer demand for gasoline is not easy to do. But the latest surge in oil prices to over the $130 a barrel level has finally affected the way we drive. Then Energy Department says since the beginning of the year, U.S. oil demand is down 1 percent. Guy Caruso runs the Energy Information Administration and calls the drop a very big deal.

GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION: It is the first time we have seen U.S. motor gasoline demand decline year on year since 1991. So it's been 17 years and that was in the midst of a recession.

GERSH: Caruso adds that the $20 a barrel run up in oil over the last few weeks has not even shown up at the pump yet. He plans to update his summer energy outlook in a few weeks and he now says there's a high likelihood the average price of gasoline will crack $4 a gallon. Caruso thinks the price increase is market driven, with speculation taking a backseat to fundamentals.

CARUSO: In our view, speculation in futures market has really been following the market up, not leading it.

GERSH: Indeed, oil markets barely blinked today. Crude ended $131 a barrel, but that does not necessarily mean dire news for the economy and the stock market. Vanguard chief economist Joe Davis says there is a big economic difference between a disruption in oil supplies and strong global demand.

JOE DAVIS, CHIEF ECONOMIST, VANGUARD GROUP: If oil prices are rising truly because of global demand, then actually the return on the stock market is positive. In other words, the stock market reacts positively to oil price increases, and that is in large part because the revenue of many large cap and other companies is rising globally, despite the increase in input costs such as energy costs.

GERSH: But those energy input costs could be going up a lot more. Morgan Stanley today added to the predictions of sharply higher oil prices, warning limits on worldwide supply could easily lift the price of oil to $150 a barrel. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.