Why Analysts Claim Oil Prices Will Continue to Decline

The price of crude oil is at a 7-month low in the US, resulting in a subsequent decline in prices at the pump. Saudi Arab Light oil prices were reduced to its lowest point since December 2008, ad Citigroup reduced the forecasted price of oil for the final quarter of the year by 10 percent. The results of such declines in the US is a boost in consumer spending- people are now able to spend their money elsewhere in the economy thanks to the amount they are now saving at the pump.

According to The Washington Post, the four major reasons prices continue to fall more than expected are as follows:

 Oil production is growing, spearheaded by the US- The US production of oil is at its highest level since 1986, thanks to shale oil drilling in North Dakota and Texas. Such developments have put US production almost on par with that of Saudi Arabia, and North Dakota is independently producing more than Libya

Global oil consumption is low- Not only is China’s oil consumption below the expected rate of growth, but the federal vehicle fuel efficiency requirements established in 2009 are stagnating the growth in oil use.

A drop in prices will have political and economic consequences– The decline will effect Russia, the Middle East, and the US economy.

People are cautious as a rebound is always possible- According to the article, there are three reasons oil prices may rebound. The first is that refineries often close down for repairs this season, which would spur a recovery in prices once rehabilitated. The second is that, while the US has been enthusiastically lowering prices, the nation still important a large amount of oil. Lastly, when prices drop, consumption tends to increase.

 

Read more here- “Oil Prices are Falling- and that’s Good for the US and Bad for Russia,” (Steven Mufson, The Washington Post)

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Olivia is a graduate of Villanova University where she studied Economics and History, minoring in Gender and Women's Studies. She also has experience working with federal legislatures on health care policy, women's issues, and Internet safety.

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