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EAGLE EYE
06-18-2010, 02:42 PM
May 8, 2008 A new Goldman Sachs (http://npr.wikinvest.com/wikinvest/export/v3/?frame=NPRTearsheet&action=getFrame&search=NYSE:GS) report says oil prices will soon spike to $150 a barrel. The company has successfully predicted past price increases. Wall Street Journal's Neil King discusses why this report is likely accurate.




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ALEX COHEN, host:
This is Day to Day from NPR News. I'm Alex Cohen.
MADELEINE BRAND, host:
And I'm Madeleine Brand. If you're upset about gas prices now, wait a year. Oil experts predict prices will continue to rise. The investment bank Goldman Sachs - it predicted the current price spike - says crude oil prices may jump from the current 120 dollars a barrel, all the way up to 200 dollars a barrel by next year. Neil King writes about this in the Wall Street Journal, and Neil, why does Goldman and Sachs - let's start with them - why do they think there will be this big price increase?
Mr. NEIL KING JR. (Staff Writer, Wall Street Journal): Well, they are looking at some of the fundamentals that are out there, particularly, the lack of what we call "spare capacity," that is amount that someone could bring online if there was a real jolt to the system, and that has typically been Saudi Arabia that actually has the ability to do that. At that moment, their ability is down to about two percent of what the world consumes every day. We consume about 86 million barrels a day.
The Saudis might, in a pinch, be able to bring on about two million barrels, and there's also just a general downward trend in a lot of the countries that the world has relied on for a long time. Mexico, production is going down there rather dramatically. It may stop being an oil exporter altogether within four or five years, as it's going now. And where the biggest pools of oil are in places like Iraq or Iran where there are difficulties, obvious ones, in getting investors to get what there is. So, it's like a compounded problem.
BRAND: And meanwhile demand is increasing?
Mr. KING: It is. It's actually decreasing at the moment in the United States, and largely because we are a lot more price-sensitive than many other parts of the world. But the big pinch, which isn't noticed all that much, is actually in the oil-producing countries itself is one of the biggest demand increases, particularly in Saudi Arabia and in Gulf countries.
BRAND: Now, in your article, you quote an analyst as saying that at 150 dollars a barrel, which is not too far away from 120, that would put prices at, quote, "an unprecedented level, even going back to just after the Civil War." What will that mean for prices at the pump?
Mr. KING: He was figuring, this being someone that works for the Federal Reserve in Dallas, that 150 would push gas prices to at least $4.50.
BRAND: Well, and then next year, 200 dollars, according to Goldman Sachs, what would that translate into?
Mr. KING: Whoa, that would - I mean, that's the kind of price level that you would see a serious impact on the U.S. economy. I mean, that would at least be six, perhaps even upwards towards seven dollars a gallon. And what was amazing, Goldman was saying that this was sort of an outlier possibility, but they were saying that there was a decent chance of oil averaging 200 dollars a barrel next year and that would - I mean, that would have really huge impact.
The thing is, is that at the moment, we have no real ability to bring on big amount of supply to ease all this. But any real downward turn in demand would change the equation a lot. So, that's the thing that a lot of people are looking at now.
BRAND: So, they're just hoping that people will, long before it gets to seven dollars a gallon, will say, oh, my gosh, I've got to use less and that will lower the price.
Mr. KING: That that will happen, that even that kind of stress will push not only people to change their behavior, but also push other things, technology and other forms of fuel, et cetera, that much faster, that will then make up the difference, but - and that will be equal to change in demand, at least for petroleum products.
BRAND: That's Neil King. He writes for the Wall Street Journal. Neil, thank you.
Mr. KING: I appreciate it. Thanks.
BRAND: Wow, gas at seven dollars a gallon? I think that price spike will hit a lot of drivers like a Mack truck. Here's a sample from the littlest engines to the big dogs on the road, of what it would cost to fill up at seven dollars a gallon.
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(Soundbite of car honking)
Unidentified Man: Say, bro, is that a Yaris?
BRAND: Don't call it hatchback or a gas guzzler. Toyota's Yaris lift-back packs a very practical 11.1 gallon tank. Still, at seven dollars a gallon, it'll take almost 78 bucks to fill the tank of this little sporty ride.
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BRAND: Buy American if you want to, but stars-and-stripes luxury could cost you about 126 dollars to fill a Buick Lucerne with seven-dollar gas. Today's Chevy Impala is a new twist on an old-school favorite. What will get old quick is the 119 dollars that you'll pump into that tank.
Unidentified Announcer #1: Stop in and see your Chevrolet dealer for the greatest show on work.
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BRAND: Then there's the palace on wheels. Ford's Lincoln Navigator is the SUV version of top sirloin. Good thing it's so big and cozy, because if gas reaches seven dollars a gallon, you might need to put up the house and move on in. A hundred ninety-six dollars per tank.
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Unidentified Announcer #2: Lincoln, reach higher.
BRAND: And finally, over in this corner, the super heavyweight of highway hulks, Hummer's H2. It's a decadent mammoth. It gets about 10 miles per gallon. So this mighty H2, subject of a lot of awe and a lot of scorn, would need 224 dollars' worth of gas to fill a tank. Not so tough now, huh?







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