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Here's What's Going On With Global Oil Markets


Oil prices have been falling sharply. Since early October, the price of crude has fallen more than 25 percent. To help us understand what's going on in global oil markets, we're joined now in the studio by NPR's John Ydstie. Hi, John.


SHAPIRO: When economic growth in the US has been so strong, you'd expect that to push up oil prices, right? So why are these prices going down?

YDSTIE: Well, you're right, Ari. Robust growth usually pushes up demand for oil and the price of oil. And that's what we saw from the middle of last year until early October of this year when growth in the U.S. and around the world was strong. But there are signs that global growth is fading partly due to trade tensions. Just last week, China reported its slowest growth in a decade. And both Germany and Japan, big exporters to China, reported their economies had negative growth in the third quarter. They actually went backwards. So demand for oil is waning, and as a result, there's a lot of supply. And the price has fallen pretty sharply.

SHAPIRO: When you say there's a lot of supply, the U.S. has put new sanctions on Iran. Wouldn't that reduce the supply and drive prices up?

YDSTIE: Well, yes, it would. And the Trump administration was worried about that. So they gave a number of countries a six-month waiver to those sanctions, and they're continuing to buy oil from Iran. Also, the U.S. convinced Saudi Arabia to boost its output to offset any drop in Iranian production. So those waivers and the added Saudi production along with more Russian production and increased output from U.S. shale fields has boosted supply so much that prices have fallen.

SHAPIRO: So as you talk about Saudi oil production, that ties into the big story this week about President Trump saying there won't be consequences for the crown prince in the Khashoggi killing. The president tweeted today, oil prices getting lower, great - like a big tax cut; thank you to Saudi Arabia. So this is all tied together.

YDSTIE: It is all tied together. And - but the worry is if the U.S. were to punish Saudi Arabia, the fear is that the Saudis would retaliate by shutting off the spigot and driving oil prices higher. But, you know, the Saudis could be shooting themselves in the foot if they did that because making oil more expensive would actually help their biggest competitors, who are U.S. shale producers. They need higher prices to be profitable. In fact, the Saudis would be repeating a mistake they made back in 2014 when they cut production. That boosted oil prices. The U.S. shale producers invested so much in production that the United States is now the world's biggest oil producer.

But here's the flip side. Oil production has become a much larger share of the U.S. economy, and that means low oil prices hurt American companies. They hurt U.S. workers and slow overall growth. So cheaper oil helps U.S. consumers, but it's not the complete win for the U.S. economy that the president suggests in his tweet.

SHAPIRO: Thanks for sorting that out for us. NPR's John Ydstie, thank you.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.