Oil prices are falling fast. Here's why

What a difference a week can make.Oil prices surged to their highest level in over three years last week, and ...

Posted: May 28, 2018 11:01 PM
Updated: May 28, 2018 11:01 PM

What a difference a week can make.

Oil prices surged to their highest level in over three years last week, and strategists were marveling that prices had shot up so quickly. Now prices are slumping.

US crude oil futures have dropped by nearly 10% to trade around $66.50 per barrel, down from about $73 last week. Global benchmark Brent crude oil has dropped by about 6% to trade around $76, after peaking above $80.

The sharp price decline was triggered on Friday by Saudi Arabia, the biggest oil exporter in the world and de facto leader of oil cartel OPEC. Saudi energy minister Khalid Al-Falih said during a CNN-hosted panel in St. Petersburg, Russia, that he was in intensive discussions with Russia and other OPEC nations to pump more oil to ease global supply concerns.

OPEC oil producers and Russia are due to meet in Vienna on June 22 to discuss easing self-imposed supply caps, which have been in place since 2017.

"It is the intent of all producers to ensure that the oil market remains healthy, and if that means adjusting our policy in June, we are certainly prepared to do it," Al-Falih said.

Al-Falih said OPEC and Russia could supply more oil to world markets "in the near future" to make up for a collapse in Venezuelan output and the impact of US sanctions on Iran.

Related: What is the perfect price for oil?

"The impression of easing output cuts on its own is sufficient to put a cap on [oil] prices," said Hussein Sayed, chief market strategist at FXTM. "From now and until the [June] meeting, the ongoing commentary will continue to drive prices."

The downward pressure on oil continued on Monday as traders considered data showing a jump in the number of US oil rigs, indicating potential growth in US production.

US crude production has increased by about 25% since mid-2016 as producers look to capitalize on rising prices.

Oilfield services firm Baker Hughes released data on Friday showing the rig count in North America hit its highest level of the year last week. The current global rig count now stands above the average set in 2017.

Related: Venezuela's once-proud oil industry is collapsing

The drop in oil prices is welcome news for drivers, as well as companies and countries that buy a lot of energy. For example, airlines tend to have higher profits when their fuel prices are lower. And countries like India benefit when crude prices are tamed.

Oil markets hit something of a sweet spot earlier this year as prices bounced between $60 and $70 per barrel. Experts generally consider this price level to be high enough to sustain supply and low enough to sustain demand.

Saudi Arabia knows it has a delicate balance to strike. Higher prices help finance its government programs (and are good for its plans to privatize its state oil company, Saudi Aramco.)

But these higher prices can constrain global economic growth as individuals and companies feel compelled to cut their spending. A slower world economy ultimately leads to lower oil demand, creating a lose-lose situation for the kingdom.

Huntsville/Redstone
Cloudy
38° wxIcon
Hi: 50° Lo: 35°
Feels Like: 38°
Muscle Shoals
Cloudy
40° wxIcon
Hi: 53° Lo: 35°
Feels Like: 36°
Huntsville/Madison
Cloudy
38° wxIcon
Hi: 49° Lo: 35°
Feels Like: 32°
Decatur
Cloudy
39° wxIcon
Hi: 51° Lo: 37°
Feels Like: 36°
Fort Payne
Cloudy
35° wxIcon
Hi: 50° Lo: 35°
Feels Like: 35°
WAAY Radar
WAAY WAAY-TV Cam
WAAY Temperatures

Alabama Coronavirus Cases

Cases: 417528

Reported Deaths: 6030
CountyCasesDeaths
Jefferson61313888
Mobile29768542
Madison26637185
Tuscaloosa20580268
Montgomery18696304
Shelby18310113
Baldwin16002179
Lee12261101
Morgan12093112
Etowah11604157
Calhoun10982200
Marshall10108107
Houston8474129
Cullman7960104
Limestone790174
Elmore7723101
DeKalb764697
St. Clair7460120
Lauderdale745183
Talladega6102108
Walker5852174
Jackson574441
Blount526483
Colbert525670
Autauga510355
Coffee434256
Dale391081
Franklin363445
Chilton333565
Covington326167
Russell323810
Escambia312442
Dallas300296
Clarke278233
Chambers277869
Tallapoosa2599107
Pike245829
Marion240549
Lawrence240447
Winston223835
Bibb213047
Geneva197431
Marengo197329
Pickens195231
Hale173742
Barbour171236
Butler167958
Fayette166026
Cherokee159630
Henry151119
Monroe144417
Randolph138535
Washington136526
Clay125246
Crenshaw118044
Lamar116619
Cleburne116023
Macon113335
Lowndes108735
Wilcox101221
Bullock98128
Perry95419
Conecuh92920
Sumter88726
Greene75323
Coosa60414
Choctaw51224
Out of AL00
Unassigned00

Tennessee Coronavirus Cases

Cases: 676039

Reported Deaths: 8311
CountyCasesDeaths
Shelby752601102
Davidson69679654
Knox38097389
Hamilton34075324
Rutherford32696282
Unassigned22259128
Williamson21054138
Sumner17980229
Out of TN1581878
Wilson14242154
Montgomery14085148
Sullivan12405209
Washington11757191
Blount11708122
Maury10812122
Bradley1058390
Sevier10320108
Putnam9790136
Madison9011178
Robertson751685
Hamblen6855106
Anderson6678101
Greene6500108
Tipton611664
Gibson5571111
Coffee552981
Dickson529277
Cumberland528672
Bedford523885
Roane510777
Carter5053112
Lawrence502869
McMinn500473
Warren492753
Loudon487750
Dyer469281
Jefferson464975
Monroe447362
Hawkins438668
Franklin403556
Obion396474
Fayette388951
Rhea376155
Lincoln372944
Cocke338956
Weakley337848
Marshall335836
Cheatham330528
Henderson330155
Campbell318139
Giles317371
Hardeman306452
White305543
Carroll304459
Hardin295446
Lauderdale291031
Macon284150
Wayne259519
Henry257357
Overton249142
DeKalb239340
Haywood237245
McNairy233642
Smith228427
Trousdale228314
Marion222731
Scott222431
Hickman219734
Fentress211031
Grainger204935
Claiborne202021
Johnson200531
Morgan186615
Crockett179638
Bledsoe172610
Chester171037
Unicoi164643
Cannon155419
Lake154019
Decatur145926
Polk139817
Grundy138220
Union136821
Sequatchie133318
Humphreys131117
Benton130935
Lewis126820
Meigs111916
Stewart103820
Jackson102821
Perry93725
Houston93122
Clay92026
Moore7888
Pickett66819
Van Buren6487
Hancock3986

Community Events