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The Pumpjacks work in a field in New Mexico.
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Charlie Riedel / AP
The Pumpjacks work in a field in New Mexico.
Charlie Riedel / AP
Oil prices continued to fall on Friday, due to weak global demand and increased production in the United States, reaching their lowest price this year. The price per barrel fell below $ 60, a decline of more than 20% from the peak reached last month.
President Trump has credited Saudi Arabia with falling oil prices. "Thanks to Saudi Arabia, but let's go lower!" he wrote in a tweet on Tuesday. He called the drop "a big tax cut for America and the world".
But falling prices have raised concerns about the international economy, as well as domestic growth in the United States.
While high output in Saudi Arabia contributed to lower oil prices, experts cite a combination of factors that fueled the downturn, both in supply and demand. Record oil production in the United States and exemptions from US sanctions on Iranian oil have resulted in an increase in supply. At the same time, the slowdown in economic growth, combined with the strength of the US dollar – which makes oil more expensive for other countries – could contribute to a decrease in demand.
The drop in oil prices reflects the signs of a deceleration in global growth, said Michael Regan, Bloomberg's chief editor. He quotes a report released Friday in Germany showing that the country's economic growth has reached its lowest level in four years. And the US stock market has just had its worst Thanksgiving week since 2011.
"This drop in oil coincides with a fairly alarming decline in the stock market," Regan told Jeremy Hobson on NPR's Here & Now. "And many traders and analysts worry that the economy will slow down a bit, especially because of all the uncertainty surrounding trade tensions."
At the same time, prices at the pump have dropped from an average of $ 2.80 last month to just under $ 2.60 on Friday. This means that drivers of midsize cars save about $ 3 each time they refuel.
But as NPR's John Ydstie reports, the drop in oil prices could have negative long-term effects because of the growing share of oil in the US economy. The United States has increased oil production due to strong demand and has become the world's largest producer of crude oil earlier this year, according to the US Energy Information Administration.
"Because the United States has become such a big oil producer, because of the fracking boom and other innovations in drilling … it's not so easy to assert that a drop in oil prices is without a doubt beneficial for the US economy, "said Regan.
The fall in prices has heightened tensions for the OPEC meeting in December, during which cartel members, including Saudi Arabia, may choose to curtail production and boost their oil prices. price.
At the same time, the experts cautioned that the decline could be an ordinary feature of the typical cycle of oil expansion and slowing, where every adjustment of the global economy precipitates the next phase .
"One of the aspects of the oil market is that from the very beginning, from the very first well drilled in 1859, it has always been characterized by this great cycle of expansion and slowdown," said John Kemp. , senior analyst at Reuters. Planet Money told NPR earlier this year.
"The market always outweighs the pros and cons," he said.
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