Crude oil was down below 50 dollars today, a low that hasn’t been seen in 22 months. Only 4 months ago, oil hit an all-time high of almost 150 dollars a barrel, but the global economic slowdown has wreaked havoc on the commodity’s price.
As the economy worsens, demand for oil may continue to fall, driving prices down even further. Some analysts think it could hit 30 dollars, much to the dismay of OPEC. The cartel has already announced a plan to cut oil production by more than 2 million barrels a day to stop the price decline. And OPEC hasn’t ruled out the possibility of future cuts.
Here’s more, from The New York Times:
- The pillars that had pushed up the price of oil and other commodities seem to be crumbling all at once: the American consumer is in full retreat; the Chinese economy is sputtering; financial markets are collapsing; developing countries are trimming their energy subsidies; and the dollar is strengthening.
- The speed of the falloff is a testimony to the world’s dire economic straits. As growth in the United States, Japan and Europe contracts, global oil demand is headed for its first annual decline in 25 years.
- The drop in prices could not have come soon enough for consumers. Gasoline prices are down about half since July, easing some inflationary pressures. Falling energy costs are also providing some breathing room for the economy, although they have also ignited fears of deflation — a board drop in prices across the economy.
- But for oil producers, the collapse is bad news. The downturn will probably herald a depressed cycle for the energy industry as markets shrink and prices drop. Dozens of large-scale projects have already been canceled, or delayed, because of the fall in prices and financing constraints, including refineries in Saudi Arabia, tar sands in Canada and offshore fields in Brazil.
- Some experts warn that lower energy prices could pave the way for a new phase of higher prices when the economy eventually recovers, as companies could cut back their investments in future supplies to cope with the downturn.
Read the full story here.
