Moneycontrol PRO
Open App
you are here: HomeNewsWorld

Falling oil prices defy predictions. But what about the next chapter?

Gasoline prices have fallen every day over the past nine weeks, to an average of less than $4 nationwide, and prices of jet fuel and diesel are easing as well. But it would be premature to celebrate

August 16, 2022 / 01:33 PM IST
(Representative image)

(Representative image)

Clifford Krauss

When Russia invaded Ukraine in the spring, energy experts were predicting that oil prices could reach $200 a barrel, a price that would send the costs of shipping and transportation into the stratosphere and bring the global economy to its knees.

Now oil prices are lower than they were when the war began, having dropped more than 30 percent in barely two months. On Monday, news of a slowing Chinese economy and a cut in Chinese interest rates sent prices down further, to less than $90 a barrel for the American bench mark.

Gasoline prices have fallen every day over the past nine weeks, to an average of less than $4 nationwide, and prices of jet fuel and diesel are easing as well. That should translate eventually to lower prices for things as diverse as food and airline tickets.

But it would be premature to celebrate. Energy prices can spike as easily as they can plummet, unexpectedly and suddenly.

Close

China, where COVID-19 lockdowns remain widespread, will eventually reopen its cities to more commerce and traffic, increasing demand. Withdrawals of oil from the US Strategic Petroleum Reserve will end in November, and it will need to be refilled. And a single unexpected event — say, a hurricane flooding the Houston Ship Channel and taking several Gulf of Mexico refineries out of commission for weeks or even months — could send fuel prices soaring.

That sort of catastrophe could send tidal waves through the American and even global economy since energy prices are fundamental to the prices of everything that is shipped and produced, whether it be grain or building supplies.

“Oil prices always have the capacity to surprise,” said Daniel Yergin, an energy historian and author of “The New Map: Energy, Climate and the Clash of Nations.”

Prices could ease further if Iran agrees to a new draft nuclear agreement, opening a potential spigot of at least 1 million more barrels a day of Iranian petroleum exports.

Predicting energy prices has always been a fool’s game because there are so many factors, including the expectations of traders who buy and sell fuel, the political fortunes of unstable producing countries like Venezuela, Nigeria and Libya, and the investment decisions of state and private oil company executives.

Today those complexities are particularly difficult to assess.

c.2022 The New York Times Company
New York Times
first published: Aug 16, 2022 01:33 pm
Sections
ISO 27001 - BSI Assurance Mark