WASHINGTON—Crude oil prices plunged 4 percent Tuesday to close at $58.68 a barrel on the New York Mercantile Exchange, their lowest level since February. Oil prices have dropped almost 25 percent since July and by more than $4 a barrel since last Friday.
Falling oil prices are good news for American motorists. The nationwide average for a gallon of gasoline stood at about $2.30 Tuesday and is likely to drop more. Some oil experts see a steep plunge in oil and gasoline prices just around the corner.
"I'm looking for a number that sounds like $48 (a barrel) and I'm looking for it relatively quickly," said Dean Hazelcorn, a veteran oil trader for Dallas-based Coquest Inc. "There's too much crude. I don't know how else to say it."
An excess supply of crude oil leads to high inventories. Energy Department data to be released Wednesday are expected to confirm that stocks of gasoline and diesel fuel are indeed high. Oil production in the Gulf of Mexico is coming back on line after last year's hurricanes damaged it. That's adding to supplies and helping to drive down prices, and so is the lack of hurricane activity this season and a turn toward relative calm in the Middle East.
The precipitous drop in crude oil prices of recent weeks poses a dilemma for OPEC, the oil-producing cartel. For the past 18 months, rising oil prices gave a windfall to all oil producers, including OPEC, which produces about 40 percent of the world's oil.
News reports Tuesday quoted OPEC chief Edmund Daukoru, who's also Nigeria's oil minister, as calling on the cartel's members to cut production. On Sunday, Nigeria and Venezuela announced that they'd together withhold 170,000 barrels per day from world markets.
Oil traders shrugged off the threats to cut supplies, because they've heard them before and found them empty. OPEC members invariably keep selling oil even when prices fall.
"There's no such thing as OPEC cutting production. I don't care what you hear or what you read," said Hazelcorn, who's traded oil since 1987. "It's just never true ... they can't not have money. They're not going to stop selling. They just have never quit, ever."
Other experts agree.
"I think it safely can be said that the announcement . . . lacked credibility. Those are among the last countries you'd expect to cut production," said Greg Priddy, an OPEC expert for the Eurasia Group, a risk-management consultancy.
Instead, he said, "people will be watching for evidence of a possible rolling back of Saudi production."
Saudi Arabia is the world's largest oil exporter and the only oil power with a significant cushion of spare production capacity. It doesn't publish weekly or monthly production data, and hasn't hinted that it would scale back production.
Given its reluctance to share production data, whether Saudi Arabia backs down from its OPEC production quota of 9.1 million barrels per day must be gleaned from analyzing tanker movements and the like.
The last time OPEC tried to cut production collectively was in December 2004, after a dip in oil prices, but member nations failed to obey the game plan. Even so, by early 2005 the growing global economy drove oil prices back up, and most oil-producing nations—whether they belonged to OPEC or not—began producing flat out to take advantage of the soaring prices.
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(c) 2006, McClatchy-Tribune Information Services.
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