Oil Prices Could Continue to Drop

Analysts suggest that consumers could see prices as low as $2.55 at the pump by Christmas.

December 01, 2014

NEW YORK – U.S. crude oil prices dropped 10% to $66.15 per barrel last Friday — its lowest settlement since September 2009, reports Reuters — following OPEC’s decision to not cut back production. 

The news source notes that West Texas Intermediate (WTI) light crude hit new lows after Saudi Arabia “blocked calls on Thursday from poorer” OPEC members to reduce production. “Traders said if WTI takes out the May 2010 low of $64.24, it could technically be headed for a test below $60, toward the low of $58.32 set on July 2009,” according to Reuters.

For consumers, gasoline prices nationally were at their lowest price per gallon last week since Thanksgiving 2009. According to AAA, the national average was $2.79 per gallon on Black Friday, down 4 cents from the week prior. "I think the national average will drop to between $2.55 and $2.60 a gallon by Christmas," said Andrew Lipow, president of Lipow Oil Associates.

Meanwhile, oil stocks took a hit on Black Friday, with the S&P energy sector down more than 6%. "Eighty percent of the production coming on stream from tight oil has an economic return between $50 and $69. At this price level, tight oil will be tested. People have committed for rigs in the short term, but every management is going to go back and review their budgets and we'll see spending reined in further," Daniel Yergin, vice chairman of HIS, told Reuters. “They'll focus on the most productive wells ... spending will be concentrated in the most productive plays."

Yergin continued, saying that many of the quarterly reports from oil companies indicated that they were moving forward with drilling plans but that would change.

"No matter what OPEC does in the months ahead, this has changed the psychology of investing in the world oil industry," he said.

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