Oil prices on Monday fell to their lowest point so far this year and are now down about 20 percent in just two weeks as investors worry about the ripple effects of a debt crisis in Europe.
There is fear in both equities and commodities market that economic weakness in Europe could spread to the U.S. and hurt the global recovery. A drop in the euro has hurt the case for investing in oil.
The turnaround in oil prices has been sudden — crude hit an 18-month high of $87.15 a barrel during trading on May 3. It settled Monday at $70.08 after dipping as low as $69.27. The plunge is similar to the fall from mid-January to early February when prices fell from $84.95 to $69.50 per barrel.
The big difference now is that the latest decline occurred at the onset of summer driving season. That's good news for U.S. motorists, who should soon see sharply reduced pricesat the pump. Gas has fallen just 2 percent nationwide since peaking earlier this month at $2.929 per gallon. But that pace should pick up heading into the Memorial Day weekend and the summer driving season.
Prices in many markets in the U.S. will be $2.75 per gallon or lower by next week, said Tom Kloza of the Oil Price Information Service.
Kloza said the only losers from lower crude prices will be oil producers, but they still will make plenty of money at current prices.
Gasoline prices fell 0.5 cents overnight to a national average of $2.867 per gallon, according to auto club AAA, Wright Express and OPIS. Prices have dropped 4.1 cents in the past week and 6.2 cents since peaking May 6. Prices remain 55.9 cents higher than a year ago, but the gap is narrowing.
If oil prices remain around $70 per barrel, Kloza said pump prices could average about $2.60 to $2.65 per gallon, with some parts of the U.S. around $2.50 or so.
In its weekly report on gasoline prices released late Monday, the Energy Information Administration said the national average for a gallon of gasoline fell 4.1 cents to $2.864.
Oil prices have tumbled in the past two weeks on the European debt crisis and as supplies of oil continue to grow. The debt crisis has weakened the euro, which hit a four-year low against the dollar Monday.
The Federal Reserve's policy of nearly zero percent interest rates to spur the weak economy hurt the dollar and encouraged investments in commodities such as oil and gold. Investors, believing that growth in developing countries would increase consumption of oil, have poured enough money into crude to set records recently on the on the New York Mercantile Exchange.
Oil had also taken its cue from the stock market, which rose more than 70 percent from March 2009 through April of this year.
On Monday, benchmark crude for June delivery dropped $1.53, or 2.1 percent, to $70.08 a barrel on the New York Mercantile Exchange. That followed a plunge in the June contract of $2.79, almost 4 percent, to $71.61 on Friday.
The lower oil prices weighed on the stocks of some major oil producers for most of Monday. Shares of Exxon Mobil, the nation's biggest oil company, were down nearly 2 percent while shares of ConocoPhillips dropped nearly 3 percent before rallying with the broader market late in the trading session.
The oil spill in the Gulf of Mexico has done nothing to slow the drop in crude prices and, so far, has not interfered with tankers carrying imported crude to Gulf ports or those taking refined products from there to other parts of the country. There is concern though that the spill could eventually slow shipments if vessels must be scrubbed of oil before they reach port.
In other Nymex trading in June contracts, heating oil fell 7.54 cents to $1.9852 a gallon, and gasoline fell 8.77 cents to $2.0431 a gallon. Natural gas rose 8.6 cents to $4.398 per 1,000 cubic feet.
In London, Brent crude advanced 75 cents to $77.93 on the ICE futures exchange.
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