Impact of global events on oil prices
How the crisis in Japan and protests throughout the Middle East are raising the price of oil, and hurting the American economy.
This story was originally covered by PRI's The Takeaway. For more, listen to the audio above.
The price of oil was already going up, even before the earthquake in Japan and political unrest erupted throughout the Middle East. "Oil prices were starting to go up at the beginning of this year, just as the natural consequence of the economy improving," finance reporter Louise Story told PRI's The Takeaway. "People were starting to buy more goods, many of which were made with oil, and those goods needed to be shipped using oil."
Now, with Japan recovering from its disaster and continuing instability in the Middle East and Libya, the price of oil has skyrocketed. "What really really set it off was the protests in Egypt," according to Story. "It introduced what people on Wall Street now are calling "the uncertainty premium" in the price of oil."
The price of oil could be between $15 and $20 higher than it would have been, "just because we don't know if we're going to lose some major supply over there," Story reports. The fighting in Libya has hamstrung the country's oil production, and people don't know how long the fighting will last or if the violence will spread to other countries.
That's bad news for the US economy. For every $10 the price of oil per barrel rises, Story estimates that the price per gallon of gas at the pump goes up by about 25 cents. For every 25 cents the price at the pump goes up, Story estimates that the US economy loses $25 billion. That makes the crises in the Middle East and Japan something of a crisis in the United States, too.
"The Takeaway" is a national morning news program, delivering the news and analysis you need to catch up, start your day, and prepare for what's ahead. The show is a co-production of WNYC and PRI, in editorial collaboration with the BBC, The New York Times Radio, and WGBH.