Warning: Oil drops below $50
The calendar may say 2015. But oil is still tumbling like it’s 2014.
The price of crude oil plummeted more than 5% Monday and fell as low as $49.82 a barrel. It was the first time oil prices have been below $50 since the Great Recession in April 2009.
Oil prices have plunged more than 50% over the past few months for a variety of reasons.
Concerns about weak global demand, particularly in Europe, Asia and Latin America have been a big factor.
But there’s also a bit of a supply glut. The United States is now a big producer of oil thanks to the shale gas boom.
And leading oil producing countries, led by Saudi Arabia, have not cut back on oil production despite the dramatic fall in prices.
The drop in oil prices has been good news for U.S. consumers. Lower gas prices are like a tax refund for consumers … and it appears that they used some of that money to spend during the holidays.
As a result, many retailers likely will report solid results for the fourth quarter and the overall economy could get a decent boost from that.
The down side: But low oil prices are also wreaking havoc on the economies of countries that depend on the commodity, most notably Russia.
There are also fears that persistently lower gas prices could lead to a slowdown in drilling in the United States. Some experts have argued that $30 oil is possible. Rystad Energy estimates that oil needs to stay above $58 a barrel for America’s shale plays to breakeven.
That could mean big layoffs in an industry that has been adding many jobs over the past few years. There have already been a few thousand job cuts announced, including from Halliburton.
Investors have also grown more nervous about what the slide in oil prices might mean for the global economy.
The Dow plunged 300 points Monday, with energy stocks Chevron and Exxon Mobil as well as cyclical companies General Electric and Caterpillar taking some of the bigger hits.