The reasons oil prices started sliding in June were hiding in plain sight: growth in U.S. production, sputtering demand from Europe and China, Mideast violence that threatened to disrupt supplies and never did.
After three-and-a-half months of slow decline, the tipping point for a steeper drop came on Oct. 1, said Ray Carbone, president of broker Paramount Options Inc. That’s when Saudi Arabia cut prices for its biggest customers. The move signaled that the world’s largest exporter would rather defend its market share than prop up prices.
“That, for me, was the giveaway,” Carbone said in an Oct. 28 phone interview from his New York office. “Once it started going, it was relentless.”
The 29 percent drop since June of the international price caught traders and forecasters by surprise. After a steady buildup of supply and weakening demand, the outbreak of an OPEC price war is casting doubt on investments in new oil resources while helping the global economy, keeping inflation in check and giving motorists a break at the pump.
Brent crude, the global benchmark, declined to $82.60 a barrel on Oct. 16, the lowest in almost four years, from $115.71 on June 19. In the U.S., West Texas Intermediate touched $79.44 on Oct. 27, the lowest since June 2012. U.S. regular unleaded gasoline is averaging close to a four-year low of $3.01 a gallon nationwide, according to AAA.
The drop in WTI and particularly Brent crude oil are good for the global economy, oil producers excepted. They know that their days of controlling the oil market and ensuring that prices are rising faster than inflation are largely over, thanks to the plethora of new energy sources, current and planned.
The Saudis may have been trying to gain a little more time by curbing US shale production. However, the main unintended consequence of their action in driving oil prices lower has been to put Vladimir Putin over a barrel in terms of his reckless, Soviet-style military aggression.Back to top