Oil prices have fallen so far that traders are befuddled. Benchmark West Texas Intermediate crude was over $60 per barrel at the start of the year. It recently fell under $22. Experts say that unprecedented supply married with a plunge in demand because of a contracting global economy will take prices much lower. A growing minority believes that the current price could be cut in half. That, in turn, would press gasoline prices toward $1 per gallon, where they were as recently as 1989.
OilPrice.com recently gathered the opinions of crude traders. Several said $10 a barrel oil is a possibility. In Canada, some producers already have begun to market sub-$10 crude. In all cases, the primary culprit is the oil price war between Russia and Saudi Arabia. Saudi Arabia means to cripple competitors that cannot make money at the $10 level.
Demand has dropped and will continue to do so. Large airlines have mothballed jet fleets in the hope that they might remain in business. In parts of the world where travel is limited, the demand for gas has fallen to near zero. A recession already has begun, which will put more downward pressure on crude.
As mentioned, the last time the average price of a gallon of regular gasoline was under $1 was 1989. However, it dropped to an average of $1.06 in 1998. That year, in November, some crude contracts fell as low as $10.82 a barrel.
According to GasBuddy, the average for a gallon of regular gas has dropped below $1.60 in some cities, like Houston. In some parts of Michigan, local prices are even lower. The same is true in Cleveland, which means low prices are not isolated to the states along the Gulf of Mexico that house many of the country’s largest refineries.
Many experts have pointed out that, because of a deep recession and areas of the U.S. locked down because of COVID-19, many drivers cannot take advantage of historically low gas prices. While that is true, in vast parts of America where the effect of the virus is less serious, people still need to drive to work or to school.
Oil is already at $10 a barrel in some parts of North America. Supply and demand will make more producers drop their prices as well, if they want to remain competitive.
It should come as no surprise that gas prices in some parts of America will reach $1, although it will be a sign of two disasters: a major oil price war married to plunging global demand.
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