Oil Races Down Toward $100 a Barrel

The price of West Texas Intermediate crude has begun to teeter down toward $100, after nearly three months above that level. With it the price of gasoline and anxiety about the negative effects on the economy have fallen as well. The reasons for the drop have temporarily become inconsequential because the threat that crude prices will push the U.S. toward another recession have come close to disappearing. There are now as many reasons for oil to drop and for it to rise.

Whatever the worry about the Iran embargo and the odds that the country will blockade the Strait of Hormuz, through which 20% of the world’s crude exports flow, it is not at the top of the news anymore. If Iran felt sanctions against it because of its weapons program had hurt it enough economically, it likely would have taken a blockade action by now. And the presence of the U.S. Navy probably made Iran’s leaders think twice.

Other geopolitical instability in regions such as Nigeria and Venezuela have become less of an immediate threat, and unrest in those nations appears to have calmed.

China’s economy has unexpectedly slowed, and its GDP growth may run as low as 8% this year after a decade of expansion of more than 10%. Growth in other BRIC nations also has fallen. They may fall more if new IMF projections are right. Both India and Brazil’s central banks have adjusted rates because they are anxious about the drop-offs. While the recession in parts of Europe also continues to spread, new anxiety about the financial crisis there may trigger an even worse downturn.

The biggest cause for the slide of crude may be evidence that Americans have figured ways to use less oil. Some were easy. The winter was unusually warm. There is also evidence that Americans drive less than they did a year ago, and they are more careful about energy consumption in general.

The period during which oil spiked higher most days seems to be over.

Douglas A. McIntyre