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Crude Oil Plunges Below $30 a Barrel — And Could Go Lower

 

Crude Oil Plunges Below $30 a Barrel — And Could Go Lower

By Burt Carey

Crude oil prices Tuesday dipped below $30 a barrel, having plunged 72 percent since June 2014 and marking its lowest point in 13 years.

Where does it go from here? No one really knows, but industry analysts, oil traders and Wall Street experts say the price could drop as low as $20 per barrel.

Crude oil prices plunging, lowest point in 13 years, Saudi Arabia flooding market, gas pump bonanzaTwo big forces are at play that affects crude prices. First is the fact there’s a glut of crude oil all around the world, thanks to countries such as the United States, Saudi Arabia and the United Arab Emirates. While the U.S. is producing more than 9 million barrels per day on the strength of shale oil, the Saudis staked their future on retaining world market share before American companies begin exporting for the first time in 40 years and before the Iranians can gear up to compete.

Second is that the world’s crude is traded in American dollars. As the dollar gets stronger oil is more expensive for foreign buyers.

Given that Saudi Arabia announced last month that it intends to continue flooding the market with crude, and that tensions between the kingdom and Iran have heated up recently, the dollar will continue to strengthen, pushing the per-barrel cost down. Not all OPEC members are on board with the Saudis or UAB, but Barclays is reporting that nothing is likely to change as long as there’s turmoil within the organization.

Analysts are also watching China closely, saying its stock-market volatility so far in 2016 is showing signs that its economy may be in worse shape than the Chinese are reporting. If that’s the case, China will be purchasing even less oil to feed its economy, leaving large stocks of oil on the market.

Cheap crude has resulted in a bonanza at the gas pump for Americans. The average cost of a gallon of unleaded gasoline was less than $1.97 earlier this week. The average was about $3.68 just a year and a half ago. The Energy Information Administration estimates that the average U.S. household saved about $660 on gas in 2015 compared to 2014, and it expects another 16 percent drop in gas prices this year.

Airlines and shipping companies are also beneficiaries of low fuel costs.

That puts more money in the average American’s pocket at the expense of oil industry jobs. Between oil companies and affiliated businesses, some 87,000 jobs were cut in 2015, and analysts are concerned that low oil prices could cause as many as half of the independent companies drilling for shale oil to go bankrupt before the market rebounds. Baker Hughes, a drilling services company, reports that the number of rigs drilling for oil in the U.S. has fallen from 1,609 in October 2014 to just 516 now.

Department of Energy officials said U.S. crude oil inventories are near levels not seen for this time of year in at least the last 80 years. Tuesday the agency lowered its prediction for most oil-based fuel for this year, saying it expects crude to average $38.54 a barrel. The DOE reports worldwide supplies are exceeding demand by an average of about 1 million barrels per day.

 

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