Cheaper oil appears certain this year:
After a year of oil prices so high that analysts warned they might hit $100 a barrel soon, prices are falling, financial speculators are running for the exits and analysts are pondering whether oil could fall below $30 a barrel by spring.Oil cost $41 a barrel on average in July 2004, when its price began its long climb. It’s not farfetched to think that it might fall back to that soon. Back then, gasoline sold nationally for about $1.90 a gallon.
There’s no guarantee that it’ll happen again, but several factors point to at least a few months of lower oil and gasoline prices:
- Oil production globally is no longer drum-tight. A warm winter eased demand and a mild hurricane season allowed damaged production to come back on line. That weakens sellers.
- Oil producers are in some disarray now that it’s a buyer’s market. A few vocal OPEC members want to cut production to shore up slumping prices, but OPEC’s most important producer, Saudi Arabia, has nixed that for now. Saudi Arabia now boasts 3 million barrels per day of spare production capacity, after two years when global oil supplies barely could match demand.
Some analysts suggest privately that Saudi opposition to OPEC cuts is based more on politics than business. The Saudis, they say, want to starve rival Iran of needed oil revenues because Saudi rulers are Sunni Muslims and increasingly worried about Iran’s backing of fellow Shiite Muslims who rule Iraq.
It’s almost as if oil prices follow a random walk…