February 29, 2024

Crude Oil Falls Below $100 a Barrel

After four months of surging higher, oil prices plummeted by almost 9 percent as traders worried that American drivers were beginning to balk at paying nearly $4 a gallon of gasoline. 

Energy specialists had a variety of explanations for the drop, including Thursday’s weak employment data and a strengthening dollar that tends to make all dollar-denominated commodities cheaper in dollars and more expensive for holders of other currencies.

 “Pop goes the bubble,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.  “It seems unlikely you will see any tightening in the market in the coming months. The worst of the political threats have passed us.”

 Over the last four days, crude prices have declined by about 12 percent, the quickest drop so far this year. Similar declines have come for both light sweet crude, the United States benchmark, and Brent, the benchmark for Europe and Asia.

 Gasoline prices have not yet declined, though experts say they have probably peaked and will begin falling in the next few days — probably in time for the Memorial Day weekend. Prices at the pump increased by a fraction of a penny on Thursday, according to the AAA daily fuel gauge report, which reported that Americans paid an average of nearly $3.99 for a gallon of regular. That is still 10 cents higher than a week ago, 30 cents higher than a month ago, and more than $1 more than a year ago.

 For the day, crude oil for June delivery tumbled $9.44 a barrel, or 8.6 percent, to settle at $99.80 in New York trading.

Almost all commodities prices took a tumble on Thursday. Gold for June delivery dropped 2.2 percent, or $33.90, to $1,481.40 an ounce, while silver lost 8 percent or $3.148, to $36.24 an ounce. Other metals — including nickel, copper, palladium and platinum — all fell sharply. Coffee, corn, cotton, wheal and soybeans also dropped.

Equity markets were also lower on the day with the Dow Jones industrial average falling 1.1 percent while the broader Standard Poor’s 500-stock index lost 0.91 percent. The broader Nasdaq declined 0.48 percent.

Energy experts say that oil was particularly due for a price correction after rising more than 30 percent over the last year.

 The Energy Department reported that crude inventories last week had risen by 3.4 million barrels, largely because gasoline sales have eased. A variety of government and private surveys in recent days indicated that gasoline demand declined over last month by between 1.2 percent and 4 percent from the year before.

 Mastercard’s SpendingPulse, a report based on national retail sales and activity in MasterCard payments network, has reported six consecutive weeks of declines in gasoline consumption compared to last year. The declines have been shrinking in the last two weeks, however, and consumption for the week ending last Friday was only 0.6 percent lower than a year earlier.  

 Tom Kloza, the senior oil analyst at the Oil Price Information Service, said that while “most people are not changing their driving habits,” drivers in rural areas in the West and Southeast — where incomes tend to be lower and driving distances longer — are cutting back.

 “The driver can expect to see a slow erosion of prices,” Mr. Kloza said. “My expectation is what people pay this week will be the highest they pay for 90 days.”  

Mr. Kloza predicted that the price of a regular gallon of gasoline would drop about a quarter by Memorial Day to $3.75, and gasoline could drop as low as $3.50 a gallon later in the summer. Other analysts said oil prices would continue to decline in the coming days.

 “One day does not make a trend, but this correction was overdue,” said Addison Armstrong, senior director for market research at Tradition Energy, a consulting firm.  “The selling today was aided by an incredibly strong move in the dollar and the beginnings of some demand destruction. The fundamentals have not been strong enough to justify these levels.”  

The most immediate reason for the oil price spike since January — the turmoil in North Africa and the Middle East — continues to threaten oil supplies. Libya, an OPEC producer that provides high-quality crude that is difficult to replace, remains virtually off the world market. However aside from Libya, unrest has so far not had a significant impact on oil production or deliveries through strategic ports and waterways.

Meanwhile Algeria, Saudi Arabia, Oman and other important producers have so far remained largely stable, despite fears that political instability could create trouble for their oil fields. OPEC’s intentions remain a question mark. Early in the Libya crisis, Saudi Arabia pledged to expand its production capacity to fill any gaps in the market. But in recent weeks the kingdom has actually decreased production, saying the world market is flush with supplies.

OPEC spokesmen have given few hints about where the cartel wants prices and production levels to go since the last meeting of the group in December. OPEC meets again June 8, but with tensions high between Saudi Arabia and Iran, oil experts wonder if OPEC members can come up with an acceptable consensus to alter current policies to either cut or add to world supplies.

Article source: http://feeds.nytimes.com/click.phdo?i=cbd22a8c6ed0930ee5fc257c32433578

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