Oil Drops To Lowest Price Since 2009 Amid Supply Glut And Weak Global Economy


Oil Drops To Lowest Price Since 2009 Amid Supply Glut And Weak Global Economy

Early Monday, futures for a drum of West Texas Intermediate crude oil dropped below $39 per barrel - a level that has not been seen since 2009. On Friday, oil closed at $40.29.

That compares to June of 2014, when oil went for a whopping $100 a barrel.

The present slide reflects an increase in the rate of reduction in energy prices that started last fall and could see gas go for $2 a gallon in many regions of the nation later this fall.

The newest crash in the price of oil is another indication that the world still has more oil reserves than it is aware of. It also highlights a weak worldwide economy that has seen demand for energy wane considerably.

A steep increase in production from American shale oil producers has also caused a huge supply surplus at home.

To the amazement of many, U.S. oil corporations have kept producing quickly this year despite miserable prices. That's partially because cheaper expenses and newer technologies have made it lucrative to produce even at lesser prices.

Usually, when prices drop, OPEC intervenes and stops production. The surge in American output means that strategy is not possible this time. The alliance, led by Saudi Arabia, has declined to dial back and is still pumping out a record volume of oil.

Some consider that part of a tactic to stress American producers and force them out of the industry. It is also a move to warm up its muscle at a time when its control on the international oil market has lost meaning. OPEC used to control about 60% of the worldwide oil market. Today that portion has shrunk to 40%, chiefly because of swelling U.S. production.

Bloc politics may also be playing a part. Iran's nuclear agreement with the West sets the platform for that nation to fill the market with more oil. Low oil prices also hurt Russia, where oil is its main source of foreign currency. Many have speculated the United States has worked hard to suppress oil prices to provided added incentive for Russian compliance in addition to sanctions.

Some observers believe Saudi Arabia, an old rival of Iran, may keep producing oil just to see Iran blamed in the region for low prices. The Saudis also have the money flexibility to withstand the tempest for some time -- something their enemies, such as Iran, do not have.

Not only is there excess supply, but demand side has been slow-moving. Industrial economies in Asia and Europe are hardly growing and emerging markets in South America are falling.

That's particularly true in the Chinese market, which has slowed radically in recent months.

It's almost certainly going to lead to sub-$2 a gallon pump prices, in the view of Tom Kloza, principal oil market analyst for the Oil Price Information Service, which keeps tabs on retail gasoline prices for the American Automobile Association (AAA).

According to AAA, a gallon of standard gasoline now goes for $2.60 on average in the U.S.

Yet while a boon for most consumers, cheap oil is weighing on formerly-flourishing oil states like Texas and North Dakota, who derive considerable wealth from the black gold.

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