The price of oil plunged to its lowest level in nearly six months Friday, falling below $100 per barrel for the first time since February. A drop in gasoline prices can't be far behind.
It's a welcome trend for motorists, with the summer driving season just around the corner. And it eases some pressure on the U.S. economy, which has shown only agonizingly slow growth in the nearly three years since the Great Recession ended.
Oil fell $4.05, or 4 percent, to $98.49, after a weak U.S. jobs report offered the latest evidence that the global economy is weakening, possibly reducing demand for oil. At the same time, there is mounting evidence that world oil supplies are growing.
"The jobs report was the coup de grace," said Judith Dwarkin, chief energy economist at ITG Investment Research. "But it's hard to see how prices could have stayed on the boil given ample supplies and continued economic uncertainty."
For the week, oil fell more than $6 and is now about $12 below its February high. U.S. gasoline prices have fallen to $3.80 per gallon from a peak of $3.94 in early April.
Now they could go as low as $3.50 per gallon by July 4, according to Tom Kloza, Chief Oil Analyst at theOil Price Information Service.
Tony Wei, a mechanical engineer from Piscataway, NJ., will welcome lower prices. He travels 100 miles every day to and from his job in Morris County, N.J. He's also planning a 500-mile trip to Canada and a 400-mile trip to southwest Virginia this summer in his Honda Accord.
"Definitely, I'm going to notice it," he said. "I buy so much gas."
The picture of the oil market is the reverse of just a few months ago. Then, world oil demand looked to be rising quickly at the same time that world supplies were threatened by a host of small production outages and the potential for drastically reduced production from Iran, the world's third-biggest exporter.
Those developments raised the prospect that world supplies would be at their most tenuous just as the summer driving season arrived in the developed world. The price of U.S. benchmark oil rose to about $110. The price for international oil used to make most of the gasoline in the U.S. spiked even higher, to $128 per barrel.
Gasoline prices in the U.S. appeared to be on track to soar past $4 per gallon nationwide, another burden for U.S. consumers already suffering from high unemployment and pitiful wage growth.
Now the worst of those price fears have melted away for a number of reasons:
— Falling demand: A spreading recession in Europe and slow growth in the U.S. suggests energy consumption, which fell 0.4 percent worldwide in the first quarter, will remain weak.
— Growing supplies: Saudi Arabia and other OPEC members are pumping more oil. Energy companies are employing cutting-edge drilling technology to ramp up production across the globe. World oil supplies grew on average by 1.35 million barrels per day in the first quarter, and producers should easily meet demand in the coming months.
— Easing political tensions: The West's nuclear standoff with Iran appears to be cooling off. The threat of conflict — and less Iranian crude on the market — helped push oil prices past $100. But now Iran and the West are planning talks.
The price of oil hasn't dropped this much since Dec. 14, 2011, when it fell by $5.19, or 5.2 percent, to $94.95 per barrel.
Oil prices may drift even lower in coming weeks, but analysts don't expect a dramatic plunge. World demand, though weaker than predicted, is still expected to set a record this year.
While Iran and the West are talking again, similar talks have not led to a resolution in the past. A breakdown in those talks could renew fears of supply disruptions and send prices back up.
Unfortunately, while the drop in oil and gasoline prices should help the U.S. economy — or at least insulate it from further damage — it isn't likely to give the economy a major boost, economists say.
A 14-cent drop like the one seen recently would save the typical American household $13 over a month. If sustained over a year, that drop would save U.S. drivers about $20 million.
"The problems plaguing the U.S. economy are much bigger than the oil price," Dwarkin said.