• 3 mins Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 34 mins Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 hours Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 hours ConocoPhillips Sets Price Ceiling For New Projects
  • 3 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 3 days Venezuela Officially In Default
  • 3 days Iran Prepares To Export LNG To Boost Trade Relations
  • 3 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 3 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 4 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 4 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 4 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 4 days Santos Admits It Rejected $7.2B Takeover Bid
  • 4 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 5 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 5 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 5 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 5 days Lower Oil Prices Benefit European Refiners
  • 5 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 6 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 6 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 6 days OPEC To Recruit New Members To Fight Market Imbalance
  • 6 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 6 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 7 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 7 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 7 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 7 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 7 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
Alt Text

Oil Prices Nosedive On Bearish IEA Report

Oil prices are cratering after…

Alt Text

Can Oil Prices Hit $65 This Week?

Crude prices climbed quickly as…

Behind the Low Oil Prices Lurks a Struggling Economy

Behind the Low Oil Prices Lurks a Struggling Economy

As oil prices drop to below $90 a barrel this week, reaching a seven-month low, it’s fine to take heart in the accompanying dip in gas prices at the pump, but this is all relative in the larger picture of economic slowdown and possible recession. 

Last week closed with benchmark US crude at $90.86 per barrel and $106.83 per barrel for Brent crude, the lowest levels so far in 2012, and prices continued to fall this week, dropping to below $90 for the first time since the last quarter of 2011.

Weaker demand, stronger supply, signs of slowing US and Chinese economies and a temporary cessation of simmering tensions over Iran have worked to lower prices. The possibility, and indeed probability, of a recession across the European Union is likely to drive prices down further. Prices have also lowered as a result of the strengthening of the US dollar.

In the meantime, the Saudis continue to exert downward pressure on prices, not satisfied with the fact that oil has fallen by $15 a barrel over the past month alone. 

The trend is welcome at the pump in the US, where prices have fallen by 27 cents per gallon since early April. This, of course, ignores the drivers pushing oil prices down—drivers that some warn could lead to a recession in the US.

How much further can the price of oil fall, then? Talks in Baghdad on Iran’s nuclear program achieved what the key players had hoped for: the easing of pressure and the buying of time to stave off a geopolitical crisis and lower prices during an election campaign season in the US. Now the key drivers are indications of slowing demand and recession in Europe.

In the immediate future much will depend on what happens in the European Union, where a potential looming recession would further shrink demand for oil.  

Some experts predict that any sharp worsening of the economic situation in Europe will lead to a further drop in oil prices. Others believe that oil prices have hit their lowest, for now. According to Money Morning, oil prices aren’t expected to get much lower but will continue to climb, without any sharp spikes, in the longer term. “[C]urrent oil price levels will likely serve as a base for a rebound in the second half of the year, continuing into 2013.” 

If oil prices continue to fall, enjoy the lower gas prices for all that they are worth, because most experts agree this will indicate that recession is around the corner. After all, oil demand has always been a key indicator of economic growth. A booming economy demands more oil, a shrinking economy reduces its consumption.

Jeff Rubin, former chief economist for CIBC World Markets, told Canadian media that the danger of cheap oil is that it will mean much slower economic growth in the future, noting that “oil prices plunged to $40 a barrel in the last recession.”

The bottom line is that this is as good as it’s going to get, one way or another, and cheaper gas at the pumps doesn’t necessarily translate into good times. It’s all relative.

By. Jen Alic of Oilprice.com

Jen Alic is a geopolitical analyst, co-founder of ISA Intel in Sarajevo and Tel Aviv, and the former editor-in-chief of ISN Security Watch in Zurich.




Back to homepage


Leave a comment
  • anonymous on May 31 2012 said:
    The best way to bring down the cost of oil and gas, is to use less of it.
  • Adnan Hussain Mustafa on May 31 2012 said:
    Drop in oil price is welcomed ,good news for consumers such drop lowers cost of production of both consumer and manufacturing, transport charges are more acceptable, air tickets should be lowered . The fall in oil price could be temporary related to some fear in the international markets of the future of the eurozone . I believe that the 128 dollars per barrel for Brent was a peak and now we should evaluate the decline, if it is over 20 per cent it is a sign of mild recession and if it settles around 20 per cent drop it is called correction.Finally i believe pushing prices up nowadays is difficult
  • Bob Smith on June 01 2012 said:
    Oil prices can not get any lower. If they drop so low, companies will lay off workers causing unemployment to sky rocklet. This would not help the economy get back on track.
  • A wondering person on June 02 2012 said:
    Is it time for Obama to pass the pipeline. And create some jobs. Whether you like it or not, jobs need to be created. How do stimulate an economy if you don't give the economy jobs. Is this so hard to figure out America- To spend money you have to make money first, an last time I checked Americans aren't making much money, So democrats. Wake up and smell the coffee, I have one question does obamacare create jobs, Does pipeline create jobs. Obama is too passive, he is not aggressive enough. If you wanna get re-elected go for energy. 80 dollars is the best price for oil. Everyone makes money.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News