Oil Prices Plummet 7% on Fears of a Glut
The American benchmark fell below $47 a barrel for the first time in 15 months, capping a slide that has brought prices down by more than a third since early October.
Bountiful, cheap oil supplies are an unanticipated holiday bonus for American consumers. The average price of regular gasoline has fallen to $2.37 a gallon, according to the AAA motor club, 26 cents lower than a month ago. For most of the year gasoline prices were rising, but the recent decline in oil prices has driven gasoline down by about a nickel a gallon compared with a year ago.
Oil prices had stabilized earlier this month when the Organization of the Petroleum Exporting Countries and Russia agreed to slash production by 1.2 million barrels a day. But Russia announced on Monday that its output had increased to more than 11.4 million barrels a day, a record, putting in doubt its commitment to coordinate policies with Saudi Arabia and other oil producers.
On the same day, the Energy Department reported that the United States was producing 11.6 million barrels of crude oil a day, nearly a million barrels more than a year ago. The department projects that shale-oil production will climb to record levels this month, and increase by 134,000 barrels a day in January.
A shortage of pipelines has driven down oil prices from the Permian Basin of West Texas and New Mexico, the most productive American oil field. But the completion of a series of pipelines in late 2019 should benefit producers and increase exports, adding even more barrels to the global glut.
The oil industry has struggled since prices plummeted to below $30 a barrel in 2016. Hundreds of small producers and oil-services companies sought bankruptcy protection, and more than 160,000 jobs were cut. As prices increased in 2017 and earlier this year, the industry regained some of that lost ground — a recovery now under threat.
“It sure will hurt if it lasts very long,” said Tom Dunlap, president of Tripledee Drilling of Ardmore, Okla. Mr. Dunlap said a price of $60 to $70 a barrel was typically needed to drill a new well profitably in his state.
Oil companies have become more efficient by relying on robotics and other technologies to replace workers, enabling them to explore and produce at lower prices. Those adjustments could come in handy as businesses are forced to cut back again in the coming months.
“These organizations have had to figure out they need to make a profit at $50 to $60 oil,” said Thomas M. Siebel, chief executive of C3, an artificial-intelligence software company that works with Royal Dutch Shell. “To do that they need to lower the cost of production, lower their exploration costs, lower their drilling costs; costs of operation have to be more efficient.”
So far, there are few signs that companies will meaningfully reduce exploration in 2019, though that could change if prices keep falling and the economy slows.