July 6, 2020

Another Sign of Economic Worry: Tumbling Oil Prices

In recent days, many analysts had predicted that oil prices would soon rebound, just as they had after they tumbled late last year when the Trump administration made it easier for countries like Japan and India to continue buying oil from Iran without running afoul of American sanctions.

The Trump administration has recently said it will become stricter about enforcing sanctions against Iran and do more to curb Venezuelan oil exports, too. That, along with violence in Libya and the decision by many oil companies to cut their 2019 exploration budgets, led analysts to conclude that oil prices would move up.

But the opposite has happened.

Many analysts said the fall in oil prices was at least partly driven by short-term factors. Investors had been buying oil future contracts for several months, expecting higher prices. Those traders began reversing those bets in early May when it appeared that the United States and China were not as close to a trade deal as many people had assumed.

A more pessimistic view of the economy followed, including fears that the manufacturing industry in the United States was struggling and that China was growing more slowly than expected.

An oil price rebound, of course, is still possible, especially if the administration reaches trade deals with China and Mexico or if tensions between Iran and its neighbors and the United States lead to fresh violence.

Yet falling oil and gasoline prices, especially at a time of year when they typically go up, could act as an economic stimulus of sorts.

The average price for regular gasoline nationwide on Wednesday was $2.80 a gallon, nine cents lower than a month ago. It was $2.94 this time last year. Mr. Kloza predicted that the price could drop below $2.50 in the coming weeks, helping consumers — particularly lower-income households that have older, less efficient cars.

Article source: https://www.nytimes.com/2019/06/05/business/energy-environment/oil-price.html?emc=rss&partner=rss

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