What's the new normal for global oil?

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Sabri Benishor (1:01)

Today on the show, the abnormal, new normal of oil.

From American Public Media, this is Marketplace.

In New York, I'm Sabri Beneshor, in for Kai Rizdal. It is Thursday, September 10th. We are glad to have you with us. Usually the US oil market for oil produced here is a lot more chill than international oil markets. We drill a lot here. Our market's a little insulated, prices are lower. Well, today, American oil lost its chill. West Texas Intermediate, that's US oil, went over $100 a barrel. It's almost $104 now. Not a good sign. Brent Crude, that's oil in the rest of the world, basically is at $107. All of the oils have been going up for a month now because escalation in the Middle East, oil shipments out of the Middle East are now down 65% from one year ago. And it looks like this is going to be just how it is for a while. Marketplace's Mitchell Hartman reports.

Mitchell Hartman (2:13)

Before all the disruptions from the Iran War, the Persian Gulf accounted for about 20% of global oil supply. And the price of crude hovered around $70 a barrel, says analyst Bush and Bahri at S&P Global Energy.

Bushra Bahri (2:28)

We're projecting prices at about $80 to $100 range through next year.

Mitchell Hartman (2:33)

The basic rationale, says Bahri, there's no longer an expectation the US-Iran War will end anytime soon.

Bushra Bahri (2:40)

Sometimes it's a hot conflict, sometimes it's cooler, some ships are getting through, sometimes in the dark, sometimes they're not, they're being bombed.

Mitchell Hartman (2:49)

The US and Iran can both restrict or entirely cut off oil coming through the Strait of Hormuz. Neither alone can fully reopen it.

Bushra Bahri (2:58)

The flows of oil are going to be very uneven, but overall, they're going to be less than you can't count on it.

Mitchell Hartman (3:06)

If anything, S&P Global Energy's year ahead projection for crude oil is on the conservative side. Columbia Business School climate economist Gernard Wagner's model predicts the price per barrel going forward.

Gernard Wagner (3:19)

Around 100, never below 90

It's not that the new normal is a stable higher price. It is essentially pricing in volatility, pricing in uncertainty.

Mitchell Hartman (3:34)

Samantha Gross at the Brookings Institution also calls this a new normal for the world oil market.

Samantha Gross (3:40)

We're not going back.

Mitchell Hartman (3:42)

She says after repeated announcements from the White House that the Strait of Hormuz opening soon or the war was about to end, which would temporarily drive crude prices lower.

Samantha Gross (3:52)

I don't think the market's believing those proclamations anymore because they haven't held true. The Strait of Hormuz won't be what it was before.

Now we understand that Iran can and will block it.

Mitchell Hartman (4:06)

Because it turns out it's neither very difficult nor very expensive for them to do so. I'm Mitchell Hartman for Marketplace.

Sabri Benishor (4:14)

Wall Street Today, Moody, will have the details when we do the numbers.

The New Normal Higher Oil Prices Those new normal higher oil prices showed right on up this morning in the latest measure of inflation, the producer price index. It was up four-tenths of a percent in August, most of that energy, and that in turn is fueling inflation in transportation and warehousing. You know, the things that literally everything we buy ever depend on. Marketplace's Justin Ho has that.

Justin Ho (5:04)

The cost of trucking is up more than 14% from the same time a year ago, according to the Labor Department. Jason Miller is a professor of supply chain management at Michigan State University.

Jason Miller (5:13)

The price the trucking companies receive, which is what the PPI is picking up, that is going to rise. It really is almost a linear function of how those diesel prices are changing.