DALLAS—The price of oil keeps falling. And falling. And falling. It has to stop somewhere, right?
Even after trending down for a year and a half, U.S. crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003.
“All you can do is forecast direction, and the direction of price is still down,” says Larry Goldstein of the Energy Policy Research Foundation, who predicted a decline in oil in 2014.
On Tuesday the price fell another 3 percent to $30.44 a barrel, its lowest level in 12 years. Oil had sold for roughly $100 a barrel for nearly four years before beginning to fall in the summer of 2014.
Many now say oil could drop into the $20 range.
The price of crude is down because global supplies are high at a time when demand for it is not growing very fast. The price decline, already more dramatic and long-lasting than most expected, deepened in recent days because economic turmoil in China is expected to cut the growth in demand for oil further.
Lower crude prices are leading to lower prices for gasoline, diesel, jet fuel and heating oil, giving drivers, shippers, and many businesses a big break on fuel costs. The national average retail price of gasoline is $1.96 a gallon.
On Tuesday the Energy Department lowered its expectations for crude oil and most fuels for this year and next. The department now expects U.S. crude to average $38.54 a barrel in 2016.
But layoffs across the oil industry are mounting, and oil company bankruptcies are expected to soar. BP announced layoffs of 4,000 workers on Tuesday. Fadel Gheit, an analyst at Oppenheimer & Co, says as many as half of the independent drilling companies working in U.S. shale fields could go bankrupt before oil prices stabilize.
There’s Lots of Oil
A boom in U.S. oil production thanks to new drilling technology helped push global supplies higher in recent years. Other major oil producers and exporters in the Middle East and elsewhere have declined to reduce their own output in an attempt to push prices back up. Iran, trying to emerge from punishing economic sanctions, is looking to increase exports in the coming months, which could add further to global oil stockpiles.
The Energy Department said U.S. crude oil inventories “remain near levels not seen for this time of year in at least the last 80 years.” It says global supplies exceed global demand by about 1 million barrels per day on average. Economists at the Federal Reserve Bank of Dallas believe excess inventories won’t begin falling until 2017.
