The price of benchmark oil in the United States fell below $80 a barrel on Friday for the first time since January, as traders grew increasingly concerned that most of the world was heading into a recession or was already in a recession.
The persistent drop in prices from over $120 a barrel a few months ago could easily be reversed if the European Union severely limits its purchases of Russian oil, as it has threatened to do. But for now, lower oil prices have provided consumers with some relief from inflation.
Oil prices have been rising for the greater part of the past twelve months, and accelerated sharply when Russia invaded Ukraine in February. The price of the American benchmark oil, West Texas Intermediate, settled at $ 78.74 a barrel, down 5 percent, and the global benchmark, Brent, settled down by 4 percent, to about $ 86.15.
The average price of a gallon of regular gasoline on Friday was $3.69, down 20 cents from a month ago. The price would have been lower had it not been for a fire this week at BP’s refinery in Oregon, Ohio, which sent fuel prices soaring in the Midwest.
Global supplies of oil are scarce, but demand for fuel has also been weak. Energy use in China, which has been the main driver of oil prices for the past two decades, has fallen sharply because the country’s government frequently shuts down large cities and regions to prevent the spread of the coronavirus.
Hong Kong on Friday Quarantine eased for international travelers. This announcement may indicate that Chinese officials may eventually lift strict controls on the epidemic elsewhere as well.
Another reason for the drop in oil prices is the strength of the US dollar against other currencies. Since oil is traded in dollars, the fuel becomes more expensive for individuals and companies in countries with weaker currencies even if there is no change in the base price of oil. This, in turn, reduces the demand for the commodity and lowers its dollar price.
Many economists expect the price of oil to rise in the long run, especially if the war in Ukraine continues. Russia typically supplies approximately 10 percent of the oil consumed around the world. With sanctions tightening, and the Russian oil industry collapsing due to a lack of Western technology, its production could drop dramatically, limiting supply. A stronger Chinese economy could push prices higher.
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