US oil prices drop despite Iran sanctions
Fall might have more to do with fragile economy and declining consumer confidence than with global oil reserves.
US President Barack Obama reported again this week that world oil supplies are plentiful enough for the multinational embargo against Iran to proceed without inflaming crude prices.
Though the message was designed to assure more countries to comply with sanctions, it was also a tacit reference to a slow but steady drop in the US pump price of petrol over the past few months.
American motorists and truckers are paying an average eight to 10 cents a litre less than in early April about three cents less than this time last year.
“We expected prices to actually shatter the previous record by this June but none of that happened,” John Townsend of the Automobile Clubs of America said.
But Townsend went on to point to a driving factor for the price decline: “The fact that consumer demand decreased.”
It’s another barometer reading of the fragile US economy – with unemployment still above eight per cent, and growth forecasts revised to under two per cent this year, consumer confidence has declined for two consecutive months.
While analysts say Americans are largely optimistic about a recovery in the longer term, they’re less upbeat about the next few months ahead, and that caution is reflected in how they drive their cars.
Static demand
In fact, when adjusted for population growth, the total kilometres that Americans drive annually has remained flat for the past several years.
Yet coupled with the static demand for petrol, the US is witnessing a gusher in oil production. During the 2008 presidential campaign, Obama’s Republican opponent John McCain fired up crowds with the call “Drill, baby, drill”.
Under Obama, the country is on course to produce a million barrels of crude a day, with daily output greater than since the late 1990s. And while most Americans may not know it, the US is a net exporter of petroleum products.
Meanwhile, as petrol prices have eased off, the cost of natural gas has fallen off a cliff, thanks to a bonanza in shale gas exploration across the country. That’s helped drive electricity costs down, and inspired predictions that the US is entering a transformative phase in its energy history.
Mitt Romney, Obama’s Republican challenger this time, complains that Obama deserves no credit for the oil and gas boom.
But though the outlook is positive for even cheaper petrol from now until election day in November, Obama stands to get the blame if pump prices take another reverse course upward.