Brent crude oil prices dipped below $80 a barrel on Thursday for the first time in four years amid concerns that waning demand and rising supplies will expand the global oil glut. Analysts say prices could drop even further unless major oil-exporting nations withhold some production.
Brent crude, an international benchmark, fell to $78.71 in early-morning trade. It last traded below $80 in September 2010. West Texas Intermediate, the benchmark for U.S. light crude, was down 90 cents, at $76.28 a barrel.
The dip in Brent “is consistent with our long-held view that the world will soon be awash in oil,” analysts at Capital Economics, a London research firm, said in a Thursday update. “Indeed, global oil prices look set to hit $70 much sooner than we had anticipated.”
A pile of new Chinese economic reports on Thursday helped drive the price decline. China, the world’s biggest energy consumer, saw slower-than-expected growth in industrial output and retail sales for October, and investment growth hit a 13-year low. The sluggish figures reinforced expectations of a slower rise in fuel demand from key emerging economies, Reuters reported.
At the same time, the Organization of Petroleum Exporting Countries is expected to keep producing barrels far above demand levels. Kuwaiti Oil Minister Ali Al-Omair said the oil cartel won’t cut its collective output when it meets in Vienna later this month, Bloomberg News reported.
“The evidence is abundant that OPEC needs to take oil off the market to support prices, but there’s no evidence that they are going to take the action needed to accomplish that task,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, told Bloomberg. “The oil market needs to be rebalanced. That’s what the drop in prices over the last four months shows in economic terms.”
The falling oil prices are having a mixed impact on the world’s economies. In the United States, the cheaper crude is pushing down gasoline prices. The U.S. Energy Information Administration predicted Wednesday that the average price of gasoline will stay below $3 a gallon in 2015, delivering major savings to American drivers, who will pump that extra cash back into discount retail chains, restaurants and auto dealerships, International Business Times found.
For Russia, Venezuela, Iran and other major oil-producing countries, however, lower crude prices are an economic bust. With fewer oil revenues, governments have less cash to pay off foreign debts, balance and fund public budgets and stabilize the local currency.