Oil fell to $99 a barrel this week, the first fall below triple-digit levels since May 2013. Earlier this summer, the price of Brent crude, the key oil benchmark, rose to an eight-month high of $115. It has now slumped by 14% in three months.
What the commentators said
This “extraordinary reversal” has come despite widespread geopolitical instability, which investors feared would squeeze supplies, said Tim Webb in The Times. But “the world is awash with crude thanks to record production”, which continues to grow.
Output in the trouble spots has been untroubled of late. In Libya it has recovered from turmoil earlier this year; Russia’s oil seems unlikely to be affected by sanctions; and Iraqi jihadists have been confined to the north of the country.
US stockpiles recently hit a record. Meanwhile, global demand growth is lacklustre, with Europe stuttering and China slowing.
Cheaper oil is excellent news, said Ian Campbell on Breakingviews. High oil prices have been a key reason for the poor global economic recovery, crimping household consumption and business spending.
For instance, the amount UK households spent on motor fuel jumped by 28% between 2009 and 2012. US households’ expenditure on petrol rose to 4% of pre-tax income, a three-decade high in real terms.
What next for prices? The fighting in the Middle East could take an unexpected turn, reviving supply jitters. In Libya, security concerns are mounting. Opec, the oil exporters’ cartel, is likely to ensure that prices don’t fall too far.
Its members needed an average price of $103 to balance their budgets last year. An extended price slide is not on the cards.