- The price of crude is down because global supplies are high at a time when demand for it is not growing very fast.
- US crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003.
- The price decline deepened in recent days because economic turmoil in China is expected to cut the growth in demand for oil further.
- Many experts, including Morgan Stanley, are predicting sub $20/bbl crude prices.
- But prices may rise as tension between Saudi Arabia and Iran has increased in recent weeks.
The price of oil keeps falling. And falling. And falling. It has to stop somewhere, right? Even after trending down for a year and a half, US crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003.
Larry Goldstein, Energy Policy Research FoundationAll you can do is forecast direction, and the direction of price is still down.
Goldstein predicted a decline in oil in 2014. On Tuesday, the price fell another 3 percent to $30.44 a barrel, its lowest level in 12 years.
The price of crude is down because global supplies are high at a time when demand for it is not growing very fast. The price decline, already more dramatic and long-lasting than most expected, deepened in recent days because economic turmoil in China is expected to cut the growth in demand for oil further.
The national average retail price of gasoline is $1.96 a gallon. Energy Department expects US crude to average not more than $38.54 a barrel in 2016. Thus layoffs across the oil industry are mounting, and oil company bankruptcies are expected to soar. BP announced layoffs of 4,000 workers on Tuesday.
There’s Lots Of Oil
A boom in US oil production thanks to new drilling technology helped push global supplies higher in recent years. Other major oil producers and exporters in the Middle East and elsewhere have declined to reduce their own output in an attempt to push prices back up. Iran, trying to emerge from punishing economic sanctions, is looking to increase exports in the coming months, which could add further to global oil stockpiles.
The Energy Department says global supplies exceed global demand by about 1 million barrels per day on average.
Most of the increase in world oil demand over the past several years has come from China, but signs are pointing to much slower economic growth there, which in turn reduces demand for fuels made from crude. Disappointing reports last week about China’s manufacturing sector and a fall in the yuan’s value triggered a global stock sell-off and an even more dramatic decline in the price of oil and other commodities.
Winners and Losers
Motorists are saving every time they fill up. The Energy Information Administration figures that the average US household saved $660 on gasoline in 2015 compared the year before, and gasoline is expected to fall another 16 percent in 2016. A
Airlines, big users of jet fuel, have posted record profits, and shippers and other businesses are also saving from cheaper energy. But workers in the oil patch have paid the price. About 17,000 oil and gas workers in the US lost their jobs in 2015, but if you include oilfield support jobs the number is about 87,000. Even so, economists say low oil prices are still a net benefit for the US economy.
When Does it End?
Oil traders and Wall Street analysts expect further declines in oil prices in the coming weeks. Several have predicted that prices will fall below $30 a barrel and even approach $20 a barrel. But prices are expected to rise sooner or later. Tension between Saudi Arabia and Iran has increased in recent weeks, and Middle East turmoil often causes prices to rise because traders worry about a potential disruption in supplies in the world’s most important oil region. And just as $100 oil encouraged the new production that contributed to this plunge in prices, $30 oil is discouraging the big investment needed for exploration and production for the future.
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