Transcripts

Crude Futures Fall

SUSIE GHARIB: Over in the oil markets, crude prices fell sharply as worries about hurricane Dolly diminished. In New York trading, August crude futures fell $3.09 to settle at $127.95 a barrel. Forecasters say the storm is unlikely to threaten oil supplies. As Suzanne Pratt reports, with Mother Nature cooperating, traders are now refocusing on the demand picture for oil.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just a few weeks ago, it seemed that nothing would stop oil prices from spurting to new highs almost every day. On July 11, crude reached an intraday record $147.27 a barrel and some pundits said $200 was possible before year end. Since then, however, it has fallen 13 percent on indications that the price of oil may finally kill demand, especially in the U.S. Trader Tom Reilly says today, in addition to the news on hurricane Dolly, investors are now concerned about consumption.

TOM REILLY, OIL TRADER, SCS COMMODITIES: They're focusing on demand. Definitely demand is down in America, but it's a matter of -- question of whether it's down all over the world. Some people think it's not, in which case, we'll see.

PRATT: So what happened to all the speculators that were supposedly driving up prices and ignoring fundamentals? Today, futures regulators said an interagency task force has found that supply-demand fundamentals are the best explanation for the recent run-up in oil prices, not excessive speculation, as some lawmakers believe. Many economists and analysts agree that fundamentals, mostly strong demand from India and China, have been the primary price driver, as well as stagnant supplies. But those fundamentals may be changing. Economist Carey Leahy says investors are waking up to the idea that slowing U.S. growth and other global factors could result in a big drop in demand.

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: That, combined with the sense, almost as importantly, that China's growth is slowing, there will be a reduction in oil demand in China once the Olympics are out of the way, that you could have an oil price that's too high relative to fundamentals. And so, oil prices slipped about $20 a barrel and I wouldn't be surprised if they don't slip another $20 a barrel.

PRATT: On the flip side, experts say falling oil prices could also breathe some life into the U.S. economy, which many believe is in recession.

LEAHEY: For every $10 oil prices swing, you can add two or three tenths to global growth. So, a drop of $25 is worth half to three quarters a percentage point on global growth. So that's not to be sniffed at.

PRATT: Tomorrow, oil investors will get new information on supply- demand fundamentals when the government releases its weekly inventory numbers. If there is another dip in supplies, experts predict oil prices will continue to slide. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.