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February 07, 2007

The drop in oil prices

We’ve had an unexpected fall in oil prices this winter. N.C. State University economist Mike Walden explains why and what it means for the economy.

"Two reasons … for the drop in oil prices: One, of course, is the relatively warmer winter weather we have had. Now it’s not, but we have had a relatively mild winter," says Dr. Walden, a professor of agricultural and resource economics. "This means less demand for home heating oil, so that puts downward pressure on prices.

"The other thing is that speculators who are always trying to guess where the oil market is going and they either keep supplies or sell supplies, since oil prices have been dropping they gave been selling supplies," he adds. "That’s actually allowed for more oil on the market. That’s also contributed to lower prices.

"Now the impact, I think, clearly is that this has been beneficial up to now, but now that winter appears to have hit and the speculators will actually stop selling their inventories because they will run out, I think we will probably see a turn around in oil prices and gas prices for the rest of the winter," Walden concludes. "And unfortunately they will head upward."

Posted by deeshore at February 7, 2007 04:16 PM