The oil market experienced a significant sell-off on Wednesday, with U.S. crude prices dropping below $70 a barrel for the first time since July, signaling a potential decrease in gas prices, reports CNN. This development could lead to more affordable gas for consumers, with predictions suggesting a possible drop to around $3 a gallon nationally.
Such a decrease would bring much-needed relief, considering gas prices hit a low of $3.10 a gallon last December, with the national average not falling below $3 since May 2021. This decline in crude oil prices saw U.S. crude plummeting to an intraday low of $69.11 a barrel on Wednesday, the lowest since June 29, and closing at $69.38 a barrel, down by 4.1%.
Brent crude, the international benchmark, also fell by 3.8% to $74.25 a barrel.
Driving Factors Behind the Sell-Off
Analysts attribute this downward trend to multiple factors. These include concerns about weak demand in China, record-breaking oil supply from the United States, and widespread skepticism over the recent OPEC+ decision.
Andy Lipow, president of Lipow Oil Associates, a consulting firm, observed, “The market has fallen off quite rapidly”. He suggested that this trend might indicate OPEC+'s diminishing control over oil prices. Last week's agreement by OPEC+ members to implement supply cuts has been met with doubts regarding its effectiveness.
Lipow commented, “The OPEC+ production cuts appear to be more style than substance”. The current trajectory of gas prices is expected to continue downward, with an anticipated decline of another 5 to 7 cents a gallon in the coming week, as per Lipow's analysis.
He noted that while unforeseen events such as turmoil in the Middle East or a Venezuelan takeover of Guyana could revitalize oil prices, there is an increasing likelihood of U.S. gas prices nearing the $3 mark nationally. Robert Yawger, vice president of energy futures at Mizuho Securities, described Wednesday's sell-off as a “meltdown”.
He pointed to new federal data showing a significant rise in weekly gasoline inventories, which raised alarms about weakening energy demand. This dramatic shift in the oil market underscores the volatile nature of global energy prices and their far-reaching impact on consumers and economies worldwide.