Transcripts

Oil Supplies Rise But Prices At The Pump Aren't Falling

SUSIE GHARIB: Oil prices surged more than 6 percent today, despite expectations that tomorrow's government inventory report will show another increase in supplies. In New York trading, March crude futures rose $2.71 to $43.55 a barrel. That's still lower than where oil prices began the year. But as Erika Miller reports, lower crude prices haven't meant lower prices at the gas pump in 2009.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many drivers are doing a double take as they fill up their cars. Prices at the gasoline pump have been rising sharply this year, even as crude futures have fallen. A gallon of regular gasoline is currently averaging $1.85 nationwide, a 14 percent increase since January 1. But crude oil futures have dropped 6 percent in that same period. Experts aren't exactly sure what's behind the disconnect. Many predict the price of gasoline will come down eventually, especially if crude continues to fall. Oil trader Ray Carbone believes oil may be headed to $30 a barrel, due to concerns about the economy.

RAYMOND CARBONE, OIL TRADER, PARAMOUNT OPTIONS: I think the market is focused on global demand and recessionary fears and that is the reason behind the drop of over $100 from the highs of July to late December of 2008.

MILLER: But others think crude prices are being kept artificially low, due to what's called hyper contango. Contango is when the price of a short-term futures contract is worth less than a longer term one. Although the condition is not uncommon, energy analyst John Kilduff, says the current gap is the biggest on record.

JOHN KILDUFF, SR. VP, ENERGY, MF GLOBAL: There's so much crude oil being produced that there's a hyper glut of crude oil on the marketplace right now. Storage is pretty much full here in the U.S., if not around the world. They are not cutting back on production to a degree sufficient to relieve that situation.

MILLER: However, Kilduff and others do not think that situation will last. Over the next few months, he expects a sizeable rebound in energy prices.

KILDUFF: I think any hope, any restoration of faith in the global economy, will push those prices back up quickly. Certainly easily above $50 a barrel, because that is really the uh, I think, the fair price, considering growth in population, growth in demand and diminished output now that we're seeing now as a result of these low prices.

MILLER: Traders say those low prices could go even lower tomorrow. The government will report weekly data on oil inventories and it is expected to show a big increase in crude supplies. Erika Miller, NIGHTLY BUSINESS REPORT, New York