The price of oil
plunged again Monday and briefly dipped below $50 a barrel for the
first time in more than five years as evidence mounted that the world
will be oversupplied with oil this year.
Benchmark U.S. oil dipped to $49.95 before quickly rising back over
$50. In early afternoon trading oil was down $2.29, or 4.3 percent, to
$50.40 a barrel. In June of last year it traded above $107 a barrel.
Brent crude, a global benchmark used to price oil used by many U.S. refineries, was down $3.05, or 3.4 percent, to $53.37.
Oil has been falling for several months because global supplies are
rising, especially in the U.S., at a time when weakness in the global
economy is slowing the growth in oil demand.
On Monday Citigroup cut its forecast for 2015 global oil prices as a
result of high supplies. Citigroup analyst Ed Morse wrote in the report
that the first half of this year will bring "a step-up in oversupply,
more volatility, and turmoil."
Morse reduced his forecast for global crude to an average of $63 a
barrel for 2015, down from an earlier forecast of $80 a barrel.
Drillers around the world have already begun to trim exploration
budgets and delay new projects as a result of low prices, but production
from existing fields will continue and keep supplies high.
While OPEC members will likely export slightly less oil in the coming
months, they have so far decided not to reduce official production
targets.
Demand for oil in China, which has been the single biggest source of
global oil demand growth in recent years, is slowing along with the
country's economic growth. Also, the Chinese economy is becoming less
energy-intensive.
The last time U.S. oil traded below $50 was April 29, 2009.
The low oil prices have led to sharply lower fuel prices for
shippers, airlines and drivers. Morse equated the drop in global oil
prices to a $1.6 trillion stimulus package for the world economy.
On Monday the U.S. national average price of gasoline fell to $2.20
per gallon. That's $1.12 cheaper than last year at this time and the
lowest since May of 2009. The Energy Department estimates the drop in
gasoline prices will save U.S. households $550 this year.
(www.pennenergy.com)