Global Oil Glut Sends Prices Plunging

By Russell Gold,

U.S.-Led Wave of Crude Threatens Stability of Some Countries While Providing Lift to Others.

Oil prices posted their biggest one-day drop in nearly two years Tuesday as a U.S.-led wave of crude has crashed into weak global demand, threatening the stability of some countries and providing an economic lifeline to others.

Tuesday’s slide of 4.5% by U.S. crude oil to $81.84 a barrel on the New York Mercantile Exchange left the price down 20% since the start of June. That was the lowest closing price since June 2012, and some analysts predict the price will fall as much as $10 a barrel lower.

The same factors that sank prices Tuesday are behind oil’s four-month tumble, which is pressuring countries from Russia to Iran to Venezuela. World-wide demand is stagnant, and the International Energy Agency cut its full-year oil-demand growth forecast Tuesday to the lowest level in five years.

Yet oil output remains high. In the U.S., hydraulic fracturing has unleashed a torrent of new crude that is flooding the market. U.S. output is expected to increase again this year, according to Ed Morse, global head of commodities research at Citigroup Inc. Lower crude prices could slow next year’s growth.

Despite the steep drop in oil prices, the Organization of the Petroleum Exporting Countries, which controls about one-third of global oil supplies, has been unwilling to rein in production. Saudi Arabia is focused on maintaining market share even if it means cutting prices, a controversial stance addressed in a rare public letter Tuesday from Saudi Prince al-Waleed bin Talal to the kingdom’s oil minister. Iran signaled Tuesday that it also would accept lower prices.

As a result, the retail price of gasoline for the average American has dropped nearly 15% since late June to an average $3.17 a gallon as of Tuesday, according to Gasbuddy.com, a gas price-finding app.

“It’s like a tax cut that consumers can use to eat out more often, buy more goods or help save for a new home,” he said.

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