Growth in U.S. production, sputtering demand from Europe and China, Mideast violence rumored to be cause
Source: Isaac Arnsdorf | Bloomberg |
The reasons oil prices started sliding in June were hiding in plain sight: growth in U.S. production, sputtering demand from Europe and China, Mideast violence that threatened to disrupt supplies and never did.
After three-and-a-half months of slow decline, the tipping point for a steeper drop came on Oct. 1, said Ray Carbone, president of broker Paramount Options Inc. That’s when Saudi Arabia cut prices for its biggest customers. The move signaled that the world’s largest exporter would rather defend its market share than prop up prices.
“That, for me, was the giveaway,” Carbone said in an Oct. 28 phone interview from his New York office. “Once it started going, it was relentless.”
The 29 percent drop since June of the international price caught traders and forecasters by surprise. After a steady buildup of supply and weakening demand, the outbreak of an OPEC price war is casting doubt on investments in new oil resources while helping the global economy, keeping inflation in check and giving motorists a break at the pump.