Why Oil Prices Are Lowest They've Been in Months
Yergin said some of the Iranian oil has already been taken out of the market and the drop in oil prices is also pinching Iran, which has been engaged in talks with a group of six nations on its nuclear program.
So far, Iran refuses to abandon its uranium enrichment program, denying it is seeking to develop nuclear weapons.
The Iran situation remains a wild card for oil prices.
While OPEC affirmed last week that it would hold production at 30 million barrels a day, production of oil elsewhere has increased.
“We’re (the U.S.) probably close to 6.4 million barrels a day, the highest in 13 years,” said Andrew Lipow, president of Lipow Oil Associates. “My unofficial estimate compared to last June, is we’re probably up 800,000 barrels, and that is about a 14 percent increase year over year. It’s huge and it’s being led by North Dakota and Texas. It’s just unbelievable.”
He added: “What we don’t talk about very much is the decline in demand in Europe and that is a good 3 percent year on year, which is a significant amount.”
Lipow also expects gasoline prices to continue dropping to the point where they could be below $3 a gallon nationally by Halloween.
According to AAA, the national average for regular gasoline is $3.472 per gallon. That could be a major factor for the economy.
“To me what really matters is how much of consumer income filling the gas tank eats up," said Ward McCarthy, chief financial economist at Jefferies. "We’ve see it three times now, where gasoline prices get to around $4 a gallon for regular. It takes a bite out of consumer spending. So the further below you get from there the more flexibility it gives consumers. It also gives a boost to consumer confidence.”