For the first time since 2009, the price of oil has dropped to below $40 a barrel, which is huge news for consumers across the country. This is actually a huge surprise just considering that about a year ago, prices for crude oil were a little above $100 a barrel. After that, prices began to fall, along with jobs in the energy sector being cut, and this is all part of the world having too much oil and not enough demand. So you might be asking yourself what is going on? If you are like most people, you might be a little hesitant to believe this decrease in prices will last, but it could be possible, but keep in mind some things are going on that might be influencing this a little more than you think.
There is a lot of uncertainty right now about the global growth, which could be contributing to the decline in oil prices as well, especially the latest dip below $40 a barrel. American shale oil production is leading the way, even with a lot of oil companies in America choosing to continue production this year despite the prices falling the entire time. New technology and cheaper expenses are in part what is making it so profitable to continue production at these lower oil prices. Typically, we see OPEC coming in to halt production when oil prices fall like this, but this time it is very different, and many are refusing to stop. Saudi Arabia is just one country that has been refusing to stop regular oil production, and this country is now amassing record amounts of oil as per the usual. This could be seen as pressure by the country to get the American shale oil producers to stop and then get them out of the business. It can also be strategy as far as trying to show off at a point when the country is not being seen as the number one oil producer anymore, kind of like saying “look how good we are” because no one is looking at the country now.
Interestingly, OPEC only has about 40 percent of the oil market now globally, mostly due to the American oil production, and it wasn’t that long ago OPEC was around 60 percent production globally Some experts also think Saudi Arabia is still producing to kind of show Iran what’s up, as far as the amount of cash the Saudis have that they can burn, which is something Iran doesn’t have a lot of.
Besides supply being really high, there is also the issue of the sluggish economy and global markets, which have hindered demand quite a bit. The new Latin American markets are not doing well, Asia and Europe are growing by a thread, and China has a very slow economy at this point, almost at a standstill. With all of these issues in the global markets, it’s no wonder the prices of oil are falling, and $2 a gallon could be a possibility, although don’t get your hopes up on that one.
Either way, American consumers are loving the prices at the pump, considering just a year ago the average price was about $3.44, and it’s looking to be around $2.65 average now. Some investors are getting very worried though, because this hasn’t been seen since February 2009, and everyone is thinking about the global economic situation that could be about to get very ugly. Some investors believe this is the beginning of another depression, most saying if everything was great in the global markets then oil would be increasing and not falling so quickly. Wall Street is also starting to kind of get worried as well, especially since the energy sector has lost a ton of jobs within the last year, and even though American consumers are happy, the savings is still not being spent in the stores like it should be, and this means Americans are still holding onto their money. Whatever the reason, it’s a good idea to be keeping your eyes open, because while this seems like great news, it could be a very dangerous warning sign about the months to come for America and the global markets.