Will Oil Prices Decline More?

A couple of years ago, gas prices were at what seemed like an all-time high; a full tank oBrett Fingerhut Crude Oil

f gas typically cost around $60.  But in the past year or so, prices have plummeted as the demand for oil has decreased.  And now, it looks like gas prices could be going even lower; the US currently has so much crude oil that it’s running out of places to put it, potentially driving oil and gasoline prices even lower in the upcoming months.  For the past seven weeks, the US has been producing and importing on average 1 million more barrels of oil every day than it’s consuming.  This extra crude ends up in storage tanks, which in turn pushes US supplies to their highest point in at least 80 years.

If this keeps up, by mid-April, storage tanks could be approaching their operational limits, known as “tank tops” in the oil industry.  This would cause the price of crude, as well as gasoline, to plummet.  In a recent symposium at the Council on Foreign Relations in New York, Ed Morse, suggested that oil could fall down to $20 a barrel, compared to the current $50 a barrel.  At this price, oil companies, already faced with mounting losses, would have to stop pumping oil until this eased.  Gas prices would fall along with crude, although lower refinery production due to seasonal factors and unexpected outages could prevent a sharp decline.

Currently, the national average price for gasoline is $2.44 a gallon, over than a dollar cheaper than last year at this time.  Some analysts agree that crude is poised to fall sharply, although not as low as $20, since it continues to flood into storage for various reasons, such as the continued rise in US oil production, the fact that the new oil being produced can’t be processed at many US refineries, foreign oil’s continued flow into the US and that this is the slowest time of the year for gas demand.  The delivery point for most oil traded in the US is Cushing, a small town in Oklahoma that intersects several pipelines.  In theory, the tanks that dot this town can hold 85 million barrels of oil.  It’s estimated that Cushing is currently two-thirds full, and could be completely full by mid-April.

However, full tanks aren’t a sure thing.  There’s currently additional storage being constructed at Cushing, and there are currently large storage terminals in other parts of the country that will probably start to take in more oil as prices continue to fall.  Drillers have also been cutting back as prices continue to plummet.  Although the Energy Department reported another enormous rise in crude stocks last week, it also reported that diesel and gasoline supplies fell more than expected, leading some to conclude that demand for crude will soon pick up again and ease the surplus.  However, many analysts believe that the price of oil will continue to fall in the spring before summer drivers start to relieve the surplus.

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