Oil prices recently took their most significant drop since the Gulf War of the early 1990s. U.S. consumers will be seeing the lowest prices at the pump in years due to a combination of disagreements between OPEC countries, consistent output from large producers such as Saudi Arabia and Russia, and decreased travel demand.
Demand for oil had already decreased amidst travel restrictions and quarantines due to fears of the coronavirus outbreak. Overall global demand hit its first major drop since 2009. U.S. Shale oil producers also are seeing their first large drop in demand ever, as shale was not widely used until 2008.
The initial drops in prices were seen after decreased movement and economic activity affected China in February when the Coronavirus was first making headlines and causing quarantines. China is currently the second largest consumer of oil in the world. The past weekend was also significant in causing the severe price drop. When negotiations between OPEC nations seemed to stall, Saudi Arabia decided to significantly decrease their prices per barrel, which effectively set off a price war between many producers around the globe. U.S. oil prices dropped about 25% after this move. West Texas Intermediate crude, which is largely seen as a standard for U.S. oil prices, sold for less than $30 a barrel for the first time in over 4 years.
A spokesperson for the fuel comparison site GasBuddy told news outlets that the tactics being used by Saudi Arabia and Russia are troubling and unorthodox. They are absolutely not willing to lower their current production despite the decreased demand, which is making prices drop even more than normal during comparable periods of slowed demand.
Because oil prices are the single biggest factor affecting American gas prices, consumers will see a significant drop. At the beginning of this week, the national average price was $2.38 a gallon, which is the cheapest price in over a year. Experts believe the prices will stay low at least another few weeks until winter driving habits start to change and warmer weather hits most of the country. Domestic coronavirus concerns are also going to help keep prices low for the next several weeks.
Consumers should be mindful that some retailers will simply choose to not lower their prices even if they are paying less for oil. Gas prices can vary by as much as fifty cents per gallon within the same city depending on where a person stops.
Many consumer items and investments have experienced extreme fluctuations in the past weeks due to the virus. There is serious volatility in the stock market, as well as increasing prices for a number of consumer goods associated with sanitation like facial masks and disinfecting wipes. Concerns are emerging that decreased prices will lead to layoffs in the energy industry, as happened in 2014.
Economic effects of coronavirus
It is likely that these travel bans, dropping prices for stocks and other investments, and decreased oil prices will have significant short term impact on businesses or even individuals considering bankruptcy. Most experts believe that markets will recover as soon as the coronavirus outbreak starts to end, but for now it remains the most significant public health issue in years.