Wed August 28, 2013
Syria Fallout: Expect Volatile Gas Prices
The U.S. stock market has seen the biggest sell-off since May last year, and overnight the wholesale price of gas jumped up 10 cents, a cost that may or may not be passed on to consumers at the pump.
Markets watcher Phil Flynn says the crisis in Syria is “not a positive” on the global economy.
He says Syrian volatility might even cause the Federal Reserve to delay its plans to end its stimulus efforts if the economy falters.
- Phil Flynn, senior market analyst for the Price Futures Group, and author of “The Energy Report.” He tweets @EnergyPhilFlynn.
JEREMY HOBSON, HOST:
Well, all the uncertainty over Syria has roiled stock markets, and at one point today, the price of oil spiked to its highest level in more than two years. Joining us now on the line from Chicago is Phil Flynn, senior market analyst for the Price Futures Group and author of The Energy Report to talk about the economic effects of this uncertainty over Syria.
And Phil, let's start with oil, the highest level in more than two years today.
PHIL FLYNN: And we're already seeing stress in the global marketplace because of this price spike, not just here in the U.S., but really in the emerging markets, where already their currencies have been under a lot of pressure. Their stock's under a lot of pressure. And there's a fear that some of these economies that have been struggling as of late could really be knocked back into a recession if this price spike continues. So it's a major issue not just for the U.S., but for the global economy, as well.
HOBSON: Well, talk about what it's going to mean for consumers, for gas prices. It typically takes some time for the price of oil to trickle down to the price at the pump. But what are you expecting?
FLYNN: Well, you know, right now, already, you know, this month, since this crisis began, the wholesale price of gasoline has come up, you know, over 20 cents a gallon. Most of that was yesterday. We saw a 10-cent spike in the wholesale price of gasoline in just one day.
FLYNN: Now, the interesting thing about this, though, is if this were five years ago, that price spike would have been maybe five times that. But the reason why it's more subdued is that the U.S. has added a lot of refining capacity in recent years to take advantage of our new production prowess when it comes to shale gas and oil, and we're producing the most oil in 20 years. So we've got more of a buffer than we've had in the past.
HOBSON: Well, is the spike rational, though? Or is it just uncertainty and fear that's driving it?
FLYNN: You know, it's rational fear, I guess is what I could say, because you really, you know, in these type of markets, if you don't account for increased risk to supply, if the event happens, you might not have any supply. So there's a reason and a method behind the madness of these price spikes.
Having said that, based on past conflicts - for example, the last time we tapped the strategic petroleum reserve over Libya or the first Persian Gulf war, for example - generally, the run-up to these events could be the top in the marketplace.
For example, there's probably a very high probability that after the spike, the world may tap into their strategic petroleum reserves. That'll put more oil on the marketplace, and some of the what-if scenarios become more clear. You know, what if this person gets involved, and that person. So all of those worst-case scenarios, you know, may not be as bad as originally thought. So the prices will fall with more oil on the marketplace.
And then we'll assess, you know, where do we go from here? Does this, you know, go into a long-term war, or is this a one-time thing? And then the market prices will adjust once again.
HOBSON: Phil, we just have about 30 seconds left, but the stock market up slightly today. It's down about 5 percent over the last month. There's been talk that the Fed may delay tapering off its economic stimulus if this serious situation continues to escalate. What do you think?
FLYNN: I think it's very, very probable that if this - if this is more than a one-time shot, the Fed would have to. It would make perfect sense. You don't want to damage the global economic recovery if you can help it, and with more uncertainty in the marketplace, they'd have to put off the great taper.
HOBSON: Phil Flynn is senior market analyst for the Price Futures Group and author of "The Energy Report." Phil, thank you so much.
FLYNN: Thank you.
HOBSON: And the latest news is next, HERE AND NOW. Transcript provided by NPR, Copyright NPR.