Prices for Brent crude, a global benchmark, slid as low as $ 36.04 per barrel Monday, an 11-year low. That means prices dipped lower than they did even during the financial crisis of 2008 – 2009, when demand plunged along with the global economy.
Gasoline has fallen in tandem with oil, with U.S. average prices dropping below $2 a gallon Monday for the first time since 2009, according to AAA. The organization estimated that consumers have saved more than $115 billion on gasoline so far this year.
The steady decline of oil prices, which topped a sky-high $100 a barrel last year, had seemed to pause in May and June at above $60 a barrel. That hiatus is over now — prices for both Brent and West Texas Intermediate crude, a U.S. benchmark, are now in the mid $ 30s.
In one sense, this is the same old story: OPEC, Saudi Arabia in particular, declined to cut oil production back in late 2014 in order to maintain market share, and has not changed its tune. Ever since then, oil markets have had to deal with an excess of supply, driving down prices.
When OPEC members met earlier this month, on Dec. 4, they merely announced that members of the group “should continue to closely monitor developments in the coming months.”
“Every signal the market is getting suggests we’re going to have weak demand,” said Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University. In addition, he said, “We have an enormous amount of supply out there.”
However, there are some new features now that are driving prices still lower. The U.S. budget compromise that led to lifting a ban on oil exports adds to potential U.S. oil supply on the market, Bordoff said, as does “more certainty that the Iranian oil exports are coming back into the market” with the nuclear agreement in place. What’s more, Bordoff said, El Nino has kept it warm, reducing the need for heating oil. The U.S. shale oil sector, the great OPEC rival of recent years, continues to produce more than expected with prices low.
The U.S. drilling rig count actually went up slightly, by 17, to 541 at the end of last week, according to Baker Hughes. It’s important to keep that number in perspective, though — last year at this time, that number was at 1,536, or almost 1,000 active rigs higher.
Other factors that are keeping prices low, according to a Monday analysis by Raymond James’ Pavel Molchanov and Luana Siegfried, are a “substantial and inexplicable surge” in Iraqi oil and ongoing concerns that China’s economic hiccups will drive down demand.
“Oil market sentiment is currently as ugly as it’s been since January,” the analysts wrote, lowering their 2016 price forecast for West Texas Intermediate crude by $ 10 to $ 55.
Analysts continue to stress that, eventually, the excess supply will force cuts in production and the market will “rebalance,” as the International Energy Agency recently put it. Nonetheless, in its recently released World Energy Outlook, the agency considered the possibility of a “low oil price scenario” in which prices stay at $ 50 or $ 60 per barrel well into the 2020s.
If that happens, it will hurt clean energy goals, the IEA suggests — quashing investments in energy efficiency and alternative fuels. Indeed, in the U.S., gasoline consumption has actually grown by 3 percent from January through September of 2015, according to the U.S. Energy Information Administration — a suggestion that low prices are nudging people to drive more.
“There were reasons to be optimistic that new technologies and policies would reduce oil demand in the transportation sector, but that’s all much more of a challenge in the world of low oil prices,” Bordoff said.
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