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Oil Market Focuses Attention on Mideast Conflict

The NewsHour's economics correspondent Paul Solman reports on how the Middle East crisis is affecting the price of oil in other countries.

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  • PAUL SOLMAN:

    Bedlam as usual at midtown Manhattan's Man Financial, one of the world's top commodity brokers.

  • FUTURES TRADER:

    Give me that. I'll give him a shout. I'll get him rolling.

  • PAUL SOLMAN:

    In the Middle East, Hezbollah versus Israel. Hanging on every headline, it seemed, the oil futures market, which, opened for electronic trading Sunday night at 6:00 p.m., would start trading on the exchange floor in less than an hour on Monday. We asked Andy Lebow for recent prices.

  • ANDREW LEBOW, Man Financial:

    Yager (ph), what was last night's range?

  • FUTURES TRADER:

    It was from $77.74 to $75.60.

  • PAUL SOLMAN:

    That's a $2 difference within minutes, a 3 percent plunge, about 300 points if this were the stock market.

    And that was because the Israelis said what right over here at 6:00 in the morning?

  • ANDREW LEBOW:

    That they may very well wrap up the military offensive in a couple of days.

  • PAUL SOLMAN:

    And then that was denied?

  • ANDREW LEBOW:

    Came to here. It's up here now. There's a refinery on fire in Venezuela right now, so the market has rallied up further.

  • PAUL SOLMAN:

    And that chart only went up to 6:00 a.m. What's the price right now?

  • ANDREW LEBOW:

    It's about the same.

  • PAUL SOLMAN:

    The same, unless, of course, the Mideast crisis spreads and drives the price up above last Friday's record $78 bucks a barrel. And that gets us to the key question of this story: What moves the oil market? Lebow's answer: the usual suspects.

  • ANDREW LEBOW:

    It's supply and demand, lack of spare production capacity, lack of spare refinery capacity, geopolitical fears.

  • PAUL SOLMAN:

    In short, a familiar story: the geopolitics of the Middle East; too few refineries; surging demand for oil in China and India; supply problems in Iraq, Nigeria and Venezuela.

    But before we take things further, either here or at the actual futures market itself, an even more basic question: What are futures for? Why not just buy and sell oil in the present, like you do mittens or melons? Well, imagine you bought a million barrels of oil at $76 a barrel and the tanker toting it is a week away from port.