Oil Prices May Continue to Decline

pumping gas in car

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Oil Prices May Continue to Decline
| published April 14, 2015 |

By Thursday Review staff writers

Gas prices are going down again. This may yet prove to be a valuable stimulus to the U.S. economy, as well as the economies of scores of other countries, though businesses and nations engaged in oil and gas are displeased.

Oil prices are certain to drop even further this year, driven downward by a variety of factors certain to keep the price of U.S. gasoline at low levels, and possibly pushing those pump prices down even further by mid-summer. According to several energy analysts and business watch groups, the price of a gallon of regular gas dropped five cents in less than three weeks, with the almost certain future of another ten cent drop in later April.

In South Carolina, which enjoys the cheapeast gas of all 50 states, prices have already reached the $2.10 per gallon mark (the second time that has happened in three months). In Florida, where taxes are higher, gas now averages $2.27. In the San Francisco are of California, where gas is traditionally the most expensive, gas has reached as low as $3.13 per gallon.

Among the reasons for the continuing decline in oil prices: too much supply, plain and simple. Oil producing nations like Saudi Arabia, Kuwait, Iraq, Qatar and others are pumping oil as fast as it can be extracted from the sands and soils. And with little interest in collaborating with fellow OPEC countries to slow down production in order to create a stable worldwide price, these oil leaders are flooding global markets and causing reserves to continue to swell.

Furthermore, in the struggling economies of Russia and Venezuela, each of which is teetering at the brink of recession, producing and distributing oil—at any price—is the one reliable constant in otherwise shaky conditions.

Another factor has been the domestic supplies generated in the United States by expanded, and now fully operating, oil shale fields of production. U.S. energy producers have greatly exceeded expectations over the last 12 to 15 months, pushing more oil into the domestic markets and further bloating U.S. reserves. Even with some shale oil production slowing down to adjust for oversupplies, American prices may continue to decline as offshore drilling yields higher-than-expected levels of production.

Furthermore, business experts and energy analysts say that with a relaxation of economic sanctions against Iran, millions of barrels of Iranian crude will soon be entering the world’s already flooded markets. Iran has wanted restrictions on its oil lifted for decades, and with the modest success of recent negotiations between the U.S., Iran and five other negotiating partners, it looks like more Persian Gulf oil will soon be available worldwide.

U.S. demand has also dropped measurably during the last 12 months—the result of improved fuel efficiency, the popularity of hybrids, and the gathering momentum in the sales of battery-powered or alternative energy powered cars and trucks.

Oil prices have been falling globally since early last summer, in some cases even in the face of violence and war in Iraq, Syria and the Ukraine. Those drops in energy costs have already saved most American households about $1000 in less than one year—a factor which may be helping to speed economic recovery by boosting savings and disposable income.

But there is also a downside, especially in energy towns and regions such as Houston, Dallas, and in the Dakotas. If oil and gas prices fall far enough, it may become too expensive for U.S. companies to continue to produce supplies while competing with the cheaper oil coming from Saudi Arabia and other Middle Eastern suppliers.

Related Thursday Review articles:

Oil Prices Stumble on Low Storage Capacity; Thursday Review; March 17, 2015.

Oil Prices & Saudi Arabia’s Endgame; R. Alan Clanton; Thursday Review; January 8, 2015.