SCOTT SIMON, HOST:
This week, for the first time in nearly three years, global oil prices dropped below $70 a barrel. Prices rebounded a bit, but they are still down significantly. NPR's Camila Domonoske covers oil market and joins us now. Camila, thanks so much for being with us.
CAMILA DOMONOSKE, BYLINE: Yeah, happy to be here, Scott.
SIMON: What's behind the drop?
DOMONOSKE: No. 1 reason is demand from China has been lower than people expected. And one interesting factor for that is that China's big push into electric vehicles is starting to make a difference to oil demand. China just hit this new milestone where half of all new car sales are electric or plug-in in the country. Now, it takes a long time to turn over the vehicles that are already on the road, so it's still a small portion of vehicles driving but a big enough portion to move the needle on oil demand.
The other big thing that's happening in China is just the overall economy. When an economy grows more, it uses more oil, and China is experiencing this economic slowdown that means not as much oil as expected. And so because of China, there is a lot of anxiety in oil markets, that the world is simply making too much oil for where demand is going to be, and that always pushes prices down.
SIMON: And then why did prices go up slightly again in the past few days?
DOMONOSKE: Yeah. So first, Hurricane Francine did rake over oil platforms in the Gulf of Mexico. So some production had to be temporarily shut in for safety. That's a factor. But I called up Helima Croft, head of commodities for RBC Capital, and she says something else is going on too.
HELIMA CROFT: Well, I think there is a sense that maybe this slide in oil prices is overdone, that essentially that this incredible negativity about the oil market is not necessarily warranted by the data.
DOMONOSKE: So what does she mean by that? Oil prices are part psychology. So while there are real reasons for prices to go down right now, the market sometimes overreacts and then corrects itself. And you can kind of think of the last few weeks here as a collective freak-out followed by a little bit of a pep talk.
SIMON: And, Camila, what could all this mean for the U.S. economy?
DOMONOSKE: You know, Scott, I have to break this apart here because the U.S. is both the world's biggest producer of oil and the world's largest consumer. So as a producing country, there's a downside. For oil companies, lower prices can hurt. Prices aren't low enough yet to be really painful, but if they fall much more, some companies will be feeling it in this very big industry.
There's also a completely different downside, which is if you're trying to transition away from fossil fuels, which is the current administration's vision for economic growth - a green economy - we know that high gas prices motivate people to do things like buy EVs. So lower gas prices can make people less likely to shift away from fossil fuels. As an oil-consuming nation, this is an upside, obviously. Gasoline prices are dropping and expected to drop more. That saves money for drivers. We're looking at cheaper heating oil this winter. It's going to be cheaper to ship goods around. That's all anti-inflationary.
SIMON: And, Camila, as you know, question in an election year - what possible implications for the presidential race?
SIMON: NPR's Camila Domonoske, thanks so much for being with us.
DOMONOSKE: Thank you. Transcript provided by NPR, Copyright NPR.
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