US oil falls below US$50 for first time since 2009
The price of oil plunged again Monday and fell below US$50 a barrel for the first time since April 2009 as evidence mounted that the world will be oversupplied with oil this year.
Benchmark US oil dipped to US$49.77 before closing down US$2.65, or five per cent, to US$50.04 a barrel. Brent crude, a global benchmark used to price oil used by many US refineries, sank US$3.31, or 5.9 per cent, to US$53.11.
In June of last year oil traded above US$107 a barrel. But rising production outside of OPEC, especially in the United States, boosted supplies just as weakness in the global economy slowed the growth in oil demand. OPEC's decision in November to maintain existing production levels accelerated the rout in oil prices.
Slower growth in China's economy, a driver of oil demand in recent years, and a strong dollar, which makes oil more expensive for holders of foreign currencies, have also pressured oil prices.
On Monday, Citigroup cut its forecast for 2015 global oil prices as a result of high supplies. Citigroup analyst Ed Morse wrote in the report that the first half of this year will bring "a step-up in oversupply, more volatility, and turmoil."
Morse reduced his forecast for global crude to an average of US$63 a barrel for 2015, down from US$80 a barrel.
Drillers around the world have already begun to trim exploration budgets and delay new projects as a result of low prices, but production from existing fields will continue and keep supplies high.
The last time US oil traded below US$50 was April 29, 2009.
The low oil prices have led to sharply lower fuel prices for shippers, airlines, and drivers. Morse equated the drop in global oil prices to a US$1.6 trillion stimulus package for the world economy.
On Monday, the US national average price of gasolene fell to US$2.20 per gallon. That is US$1.12 cheaper than last year at this time and the lowest since May of 2009. The US Energy Department estimates the drop in gasolene prices will save American households US$550 this year.