The price of Brent crude, the global benchmark for oil prices, fell to its lowest level since 2004 on Tuesday as global supply continues to outpace demand.
Crude oil prices are continuing their dramatic slide this week, falling to 11-year lows due to growing global oversupply and reports oil producing countries plan to maintain current output levels.
Brent crude, the global benchmark for oil prices, closed at $36.11 per barrel on Tuesday, the lowest price since 2004 and down 28.6 percent from the November high of $50.54 per barrel. Tuesday’s closing price for Brent represented an astonishing 68.5 percent decline from $114.81 per barrel in June of 2014.
The global benchmark rebounded slightly on Wednesday, however, and was trading up 2.4 percent for the day at around $37 per barrel at the time this article was written.
West Texas Intermediate (WTI), the primary benchmark for U.S. oil prices, fell to $34.74 per barrel at close of trading Monday, but managed to climb 4.1 percent to close at $36.14 per barrel Tuesday, surpassing Brent for the first time in the index’s history.
Analysts attributed the narrowing of the gap between Brent and WTI to a market reaction to President Obama signing into law the lifting of a 40-year ban on U.S. crude exports Friday.
Crude oil prices were already in the tank, but recent reports that Organization of the Petroleum Exporting Countries (OPEC) would not cut production in the face of the global glut and an unseasonably warm winter tamping down demand certainly haven’t helped. OPEC’s poorer countries have been attempting to put pressure on wealthier members like Saudi Arabia to cut production and stem the fall of prices.
Saudi Arabia and its allies, however, have indicated they will stay the course and continue to defend market share in the hopes that lower prices will drive some of the lower end of the industry out of business.
Adel Abdul Mahdi, oil minister of Iraq, said after a recent meeting of the intergovernmental oil cartel he thinks crude prices will bounce back sooner than later thanks to “strong” fundamentals in the market.
“There is no doubt that oil prices will rebound,” Abdul Mahdi told reporters. “This current level is too low, and it’s affecting oil producers. I think economic factors and fundamentals are still strong.”
Meanwhile, the decline in crude oil prices is translating to lower gas prices at the pump for in the United States, according to a recent report from the American Automobile Association.
The national average price for one gallon of gasoline on Monday was $1.998, according to AAA, the first time per gallon prices have fallen below $2 since March 2009. Pump prices for gasoline traditionally drop during the winter months as consumers drive less, but AAA noted prices were especially low this year and could fall further due to the global oversupply.
“We have witnessed a dramatic shift in gas prices that has saved families hundreds of dollars so far this year,” AAA President and CEO Marshall Doney said in a statement. “The best news of all is that there is room for prices to drop even more in the coming weeks.”
For the transportation and logistics industry, lower fuel prices mean lower operating costs for carriers, which should translate to lower rates for shippers, but this has not always proven to be the case. Trucking carriers, for example, have seen revenues from fuel surcharges decrease this year due to the decline in oil prices.
North American railways have suffered in 2015 from the decline in crude prices as shipment volumes for petroleum products have fallen in concert. The collapse in prices has caused production in areas like the Bakken oil fields in North Dakota, Montana and parts of Southern Canada to slow significantly.
Ocean freight rates have also fallen dramatically across all the major east-west trades over the course of the year, but this has more to do with overcapacity issues caused by the ever-increasing size of containerships than the falling price of oil.
Crude crash continues, Brent reaches 11-year low
