Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, December 31, 1993 TAG: 9312310102
SECTION: BUSINESS PAGE: A-13 EDITION: METRO
SOURCE: The Washington Post
DATELINE: LENGTH: Medium
The cost of a 42-gallon barrel of foreign crude oil to U.S. refiners has tumbled in recent months to a five-year low. For one benchmark North Sea crude, the spot market price has fallen about 25 percent since October, from $17.90 to $13.50. Both consumers and businesses - except those involved in oil and gas production - are reaping benefits.
The decline in oil prices has shielded consumers from the recent 4.3-cents-a-gallon boost in the federal tax on gasoline and diesel fuel.
Across the nation, because of the fall in refiners' costs for crude, prices at the pump are lower now than they were before the tax rise.
Similarly, with plenty of oil available at relatively low cost, this week's intense cold snap in the Northeast, where many homes and businesses are heated with oil, did not push up the price of home heating oil, as often happens when abnormally cold winter weather hits.
Those are just two of the more obvious examples of how lower crude oil prices can cut inflation and leave households and businesses with more money to spend for other things.
Lower oil prices also mean lower prices for natural gas and electricity. And because energy is used to some extent in the production of just about everything, other prices also should be lower than they otherwise would have been.
This can have a powerful impact on the economy. Some analysts have cut their forecast for consumer price inflation in 1994 by 0.3 to 0.4 percentage points, even assuming that oil prices begin to rise again.
Low oil prices could last considerably beyond 1994. Suppose crude oil prices do not begin to rise next spring, but instead remain close to their current levels for many months or even years.
L. Douglas Lee, an economist at NatWest Washington Analysis, said stable oil prices are not a sure bet, but he doesn't rule it out.
"Our oil guys believe that if you just let supply and demand work, you probably would see a price in the $10 to $12 range for a barrel of West Texas crude. On the other hand, they think OPEC [the Organization of Petroleum Exporting Countries] would like to see prices in the $18 to $22 range.
"Right now OPEC does not have the discipline to get the price where they would like it to be . . . and you can't rule out that prices will stay where they are or go down a bit," Lee said. "Nevertheless, I think it is unlikely that oil prices will stay at $15 for the next couple of years. Sometime in the next two years, OPEC will get its act together."
by CNB