Transcripts

Can Oil Prices Clean Up The Economy?

PAUL KANGAS: Oil prices fell to a new three-month low today, after mixed news on crude and gasoline supplies. September crude futures lost $0.59 to settle at $118.58 a barrel in New York trading, after nearing $117 earlier in the session. Crude oil inventories rose by 1.7 million barrels last week, while gasoline stockpiles fell 4.4 million barrels. As Suzanne Pratt reports, even though energy prices have fallen sharply in recent weeks, experts say the U.S. economy is still in a tough spot.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: World oil markets appear to be in a state of slip-n-slide. Since hitting a high of more than $147 a barrel in July, oil prices have fallen nearly $30 or 20 percent. Some experts credit evidence of weakening oil demand for the pullback in prices. But UBS global economist Jan Stuart says he does not believe the fundamental supply-demand picture has changed all that much and as a result does not think prices are collapsing.

JAN STUART, GLOBAL OIL ECONOMIST, UBS: I think that it's the counterpart to a pretty extravagant or pretty steep run-up from $120 to $147. It's almost a mirror image of that run-up and now we're back down to $118 or $120, in any case in that range. And I suspect that the bottom is quite near.

PRATT: Concern about softening economies in the Euro zone and emerging markets is also causing other commodities prices to crack. Gold is below $900 an ounce for the first time since June, while corn is at a four-month low. The Reuters-Jefferies CRB Index, which tracks a basket of 19 commodities, has tumbled 15 percent from its early July high. The multi-trillion-dollar question for the U.S. economy is whether the pullback in prices is enough to breath life into consumer spending. Citigroup economist Bob Diclemente says it will ease some of the pain.

ROBERT DICLEMENTE, CHIEF ECONOMIST, CITI: It helps, but it won't be enough to really spark a strong consumer. It will mitigate some of the constraints on consumers that are I think still out there.

PRATT: Diclemente says the consumer is also battling eroding home values and rising unemployment, both of which he expects will continue to limit spending. On top of that, there's not a lot of conviction that oil prices will continue to fall.

DICLEMENTE: Supply and demand for energy products, at least fossil fuels, is on a course toward higher prices. So what we're getting here is some relief that's temporary.

PRATT: Temporary or not, some economists say because we use gasoline every day, a drop in prices could have a disproportionate and positive effect on consumer psychology and perhaps consumer spending. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.